Contemporaneous and noncontemporaneous idiosyncratic risk spillovers in commodity futures markets: A novel network topology approach

Abstract

AbstractThis paper proposes a new network topology approach to identify the contemporaneous and noncontemporaneous idiosyncratic spillovers of lower‐moment and higher‐moment risks in commodity futures markets using high‐frequency data. Our results show that contemporaneous information has more explanatory power in constructing a network than noncontemporaneous information, especially for higher‐moment risk spillover networks. In contemporaneous spillover networks, the role of one commodity future and the structure of the networks vary across different realized estimators. Specifically, gold, silver, and wheat are the main volatility and kurtosis risk transmitters, while corn and silver are the main skewness spillover transmitters. Agricultural futures markets are relatively closed in the volatility and kurtosis risk spillover networks, while in the skewness network, they become closer to precious metal futures. Furthermore, crisis events can enlarge the idiosyncratic volatility spillovers in commodity markets. The total spillover effects of higher‐moment risk are stronger than those of lower‐moment risk.