Commodity tail risks

Abstract

In this study, we investigate the cross-section of option-implied tail risks in commodity markets. In contrast to findings from equity markets, left and right tail risks implied by option markets are both large. Commodity-specific variables exert the largest influence on tail risk, while there is no evidence of systematic commodity factors that are linked to tail risk. Additionally, we find strong links to the equity markets, but also comovements to macroeconomic factors. Left or right tail risks are largely independent of variance risk premiums. Finally, both left and right tail risks are priced in the cross-section of commodity futures returns.

Connectedness and risk spillover in China's commodity futures sectors

“…Many studies have investigated the connectedness among industry sectors, stock markets, and countries (Ammann et al, 2022; Le et al, 2021; Weiping et al, 2020). Studies related to risk spillover mainly include return spillover and volatility spillover using price series.…”

“…Wu et al (2019), Chen et al (2022), Xu et al (2022), and Shen et al (2022) studied the connectedness and spillover in the Chinese stock market. Gong and Xu (2022), Ammann et al (2022), Ren et al (2022), and Wen et al (2021) analyzed risk spillovers in the commodity market. In addition, other research has studied the connectedness of systems in G20 countries (Weiping et al, 2020) and cryptocurrency markets (Xu et al, 2021).…”

Performance comparison of alternative stochastic volatility models and its determinants in energy futures: COVID‐19 and Russia–Ukraine conflict features

“…A plausible motivation for this interest is the need for accurately measure the volatility of energy futures prices. In fact, this variable plays a key role in the price connection between spot and futures markets—see, for example, Silvapulle and Moosa (1999), Lin and Tamvakis (2001), Hammoudeh et al (2003), Hammoudeh and Li (2004), Huang et al (2009), and Balcilar et al (2015)—on the linkage with economic and financial variables—as documented by Maréchal (2021), Prokopczuk et al (2021), Kupabado and Kaehler (2021), and Xu and Wang (2021)—and on risk management problems—see, for instance, Sadorsky (2006), Aloui and Mabrouk (2010), Yin et al (2021), and Ammann et al (2022). The time‐varying dynamics and contagion in commodity futures are explained in detail in Mehlitz and Auer (2021) and Gong, Jin et al (2022), respectively.…”