Evžen Kočenda, Institute of Economic Studies, Charles University - Event-driven changes in connectedness among commodities and commodity currencies...

Title: Event-driven changes in connectedness among commodities and commodity currencies: A quantile, network and probabilistic analysis

Abstract: We comprehensively analyze return connectedness among commodity currencies and commodities using data from 2010 to 2023. Our findings reveal iron, coal, and the Australian dollar as return transmitters to other currencies and commodities, particularly during economic downturns. By employing quantile analysis, we identify commodity currencies as net receivers of return spillovers during periods of extreme economic turbulence. Additionally, we employ a novel testing bootstrap-after-bootstrap procedure and present the first statistically grounded evidence that endogenously identified specific shocks are behind increases in connectedness and correspond to systematic events in commodity markets. We find twelve endogenously chosen events corresponding to an escalation in connectedness within a maximum of one business month following the event's occurrence. The impact of those events is rather transitory and only the 2020 pandemic exhibits a permanent impact, altering the nature of connectedness. We also show that connectedness is linked to measures of uncertainty and liquidity that produce distinct impacts. Importantly, our results remain robust across various measures and carry significant implications for portfolio construction and risk management strategies.

Presenter: Evžen Kočenda, Institute of Economic Studies, Charles University

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