Commodity Connectedness

32 Pages Posted: 20 Sep 2017 Last revised: 18 Jan 2018

See all articles by Francis X. Diebold

Francis X. Diebold

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Laura Liu

Board of Governors of the Federal Reserve System

Kamil Yilmaz

Koc University

Multiple version iconThere are 3 versions of this paper

Date Written: June 27, 2017

Abstract

We use variance decompositions from high-dimensional vector autoregressions to characterize connectedness in 19 key commodity return volatilities, 2011-2016. We study both static (full-sample) and dynamic (rolling-sample) connectedness. We summarize and visualize the results using tools from network analysis. The results reveal clear clustering of commodities into groups that match traditional industry groupings, but with some notable differences. The energy sector is most important in terms of sending shocks to others, and energy, industrial metals, and precious metals are themselves tightly connected.

Keywords: network centrality, network visualization, pairwise connectedness, total directional connect- edness, total connectedness, vector autoregression, variance decomposition, LASSO

JEL Classification: G1, C3

Suggested Citation

Diebold, Francis X. and Liu, Laura and Yilmaz, Kamil, Commodity Connectedness (June 27, 2017). CFS Working Paper, No. 575. Available at SSRN: https://ssrn.com/abstract=3038826 or http://dx.doi.org/10.2139/ssrn.3038826

Francis X. Diebold (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1507 (Phone)
215-573-4217 (Fax)

HOME PAGE: http://www.ssc.upenn.edu/~fdiebold/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Laura Liu

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Kamil Yilmaz

Koc University

Rumelifeneri Yolu
34450 Sar?yer
Istanbul, 34450
Turkey

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