Title: Contagion in commodities markets
Authors: Olusiji Sanya - Birkbeck College, University of London (United Kingdom) [presenting]
Roald Versteeg - Birkbeck College University of London (United Kingdom)
Emanuela Sciubba - Birkbeck College University of London (United Kingdom)
Abstract: Contagion is investigated within the exchange-traded commodities complex (US Dollars denominated indices for markets within the agriculture, energy, industrial metals and precious metals groupings between January 1999 to February 2013) resulting from the 2008 commodities market crash using a system of non-linear simultaneous equations which considers both bad and good contagion, resulting from extreme negative shocks and extreme positive shocks respectively. The methodology also empowers us to endogenise crisis periods and investigate contagion to and from multiple sources. Separating interdependence and monsoon effects, we find industrial metals and energy to be the most systemically important sources of contagion. We capture reverse contagion effects, i.e, the crisis triggered a flight to quality effects captured through counterintuitive, but statistically significant, contagion indicators which fundamentals cannot explain. The results also empirically corroborate the financialization of exchange-traded commodities markets as debated in the literature.