Time-Varying Multilayer Networks Analysis of Frequency Connectedness in Commodity Futures Markets

Xuewei Zhou (), Zisheng Ouyang (), Rangan Gupta and Qiang Ji ()
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Xuewei Zhou: School of Finance, Shanghai University of Finance and Economics, and Shanghai Institute of International Finance and Economics, Shanghai 200433, China
Zisheng Ouyang: Business School, Hunan Normal University, and Hunan Key Laboratory of Macroeconomic Big Data Mining and its Application, Changsha, Hunan 410081, China
Qiang Ji: Institutes of Science and Development, Chinese Academy of Sciences, Beijing 100190, China

No 202422, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper constructs multilayer frequency networks containing short-, medium-, and long-term layers to examine the frequency connectedness among commodity futures markets. We examine the frequency heterogeneity of commodity volatility connectedness at the average, dynamic, and crisis levels. We also investigate the determinants of frequency connectedness among commodity futures markets. The results show that there are strong short-term volatility spillovers between commodity futures markets, while connectedness during crises is dominated by long-term factors. We find that there is heterogeneity in the edge structure of short- and long-term networks during the crisis. In addition, we note that cocoa futures can hedge frequency risk in commodity markets. Determinants analysis suggests that inflation risk is the key driver of frequency connectedness in commodity futures. Moreover, the drivers of connectedness differ between short-, medium-, and long-term. Our work provides new insights for studying the risk contagion of commodity markets and informs the decisions of investors and regulators.

Keywords: Frequency connectedness; Multilayer networks; Commodity futures markets; Systemic risk (search for similar items in EconPapers)
JEL-codes: G14 G15 G32 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2024-06
New Economics Papers: this item is included in nep-rmg
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