Assessing contagion risk from energy and non-energy commodity markets

The aim of this study is to investigate contagion risk from commodity markets towards the whole economy and across sectors. Indeed, the financialization and integration of commodity markets expose the economy to potential contagion risks i.e., adverse shocks hitting one or more commodity markets spread to the entire economic system. To this purpose, we use the delta Conditional Value-at-Risk (Delta CoVaR) approach based on quantile regression to identify a measure of contagion risk for energy, food and metals commodity markets. This novel methodology allows us to detect whether the risk contribution for a given market is significant, while distinguishing between tail events driven by financial factors, economic fundamentals or both. Furthermore, it permits us to assess whether the contagion risk of one market is significantly larger than the one of another market. The results show that commodity markets generate contagion risks which are mainly triggered by financial factors for energy and metal markets and by financial and economic fundamentals for food markets. Oil market contributes more to contagion than metal and food markets. Moreover, it emerges that there are spillovers from energy to food markets and oil is also more important than biofuel in affecting food markets. (C)2017 Elsevier B.V. All rights reserved.