Stochastic ordering of systemic risk in commodity markets
Energy Economics
; 117, 2023.
Article
in English
| Scopus | ID: covidwho-2243482
ABSTRACT
The contribution of commodity risks to the systemic risk is assessed in this paper through a novel approach that relies on the stochastic property of concordance ordering of CoVaR. Considering the period that spans from 2005 to 2022 and the VIX as the proxy for the stability of the financial system, we build the stochastic ordering of systemic risk for 35 commodities belonging to four sectors Agriculture, Energy, Industrial Metals, and Precious Metals. The estimates of the ΔCoVaR signal that contagion effects from commodity markets to the financial system have been stronger during the years 2017–2019. Backtests validate CoVaR as a more resilient risk measure than the VaR, especially during periods of market turmoils. The stochastic ordering of CoVaR shows that severe losses (downside risk) in commodity markets tend to exacerbate systemic financial distress more than gains (upside risk). Commodity risks arising from WTI and EUA are threatening triggers for systemic risk. In contrast, the financial system is less vulnerable to a broader range of scenarios arising from fluctuations in Gold prices. As top contributors to the systemic risk, among the sectors we find Energy and Precious Metals with respect to upside risk and downside risk. The Covid-19 crisis has deeply amplified the systemic influence arising from the downside risk of WTI, Gasoline, and Natural Gas UK and has confirmed the safe-haven role of Gold. © 2022 Elsevier B.V.
Commerce; Gold; Risk assessment; Stochastic systems; Commodities market; Concordance orders; CoVaR; Downside risks; Energy; Financial system; Stochastic orderings; Stochastic properties; Systemic risks; VIX; agriculture; commodity market; energy market; precious metal; stochasticity; Financial markets; Commodity markets; Stochastic ordering; Systemic risk
Full text:
Available
Collection:
Databases of international organizations
Database:
Scopus
Type of study:
Prognostic study
Language:
English
Journal:
Energy Economics
Year:
2023
Document Type:
Article
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