Research On Return And Volatility Spillover Effects Of Major International Commodity Futures Markets

Since 2000,the price of international commodity futures has changed dramatically.The main reason is that institutional investors gradually found the commodity market to be a natural "safe haven".By taking commodity futures into their portfolios,they can play a positive role in hedging risks.When a large amount of capital flows into the commodity market,it also promotes the appearance of the financial property of commodities,which makes the linkage between commodities and the whole financial market continuously enhanced,and its own price also fluctuates violently.A significant number of commodities across the energy,metals,and agricultural sectors have experienced harmonized boom and bust cycles during the most recent financial crises.The “financialization” of commodity markets has further strengthened the integration of energy,metals and agricultural markets,and such changes have given regulators,investors,producers and even consumers an interest in analyzing how shocks to these markets are linked to volatility.At present,economists mainly focus on the correlation analysis between commodity futures markets and financial markets such as stocks and securities,ignoring the spillover effect between multiple basic commodity futures markets.The existing empirical models cannot fully measure the intensity,scale and direction of the spillover effect between markets.Therefore,in order to further understand the overall operation mechanism of the commodity futures market and further analyze the time-frequency changes of spillover effects between markets,this paper constructs a time-frequency spillover index model based on the Generalized Forecast Error Variance Decomposition,and selects four major international commodity markets--gold futures market,copper futures market,crude oil futures market and wheat futures market,as the representatives of precious metals,industrial metals,energy and agricultural markets.This paper studies the spillover effects of major international commodity futures markets from two aspects of return spillover and volatility spillover,and supplements the existing literature from the perspective of research and analysis methods.This paper selects the daily data from January 5,2000 to May 10,2019.Firstly,we use the spillover index model to analyze the static spillover effect,measure the intensity and direction of the spillover effect from the time domain and frequency domain,and then we use the rolling window analysis method to study the dynamic changes of the spillover effect in different periods.It is found that,firstly,there is a significant information spillover effect between international commodity futures markets,and the return spillover is stronger than the volatility spillover.In the return spillover,copper market is the main information transmitter,and its price transmission effect is prominent,while in the volatility spillover,gold market plays a leading role and has a strong risk transmission effect on other futures markets;secondly,the return spillover spread rapidly in the short-term(within one week),while the volatility spillover transfer required for a long time(more than one month),and the response to external shocks is more sustainable;thirdly,the total spillover effect among commodity futures markets is time-varying,and the total spillover index usually rises rapidly and fluctuates violently during the period of economic turbulence,and it is gentle during the period of economic stability;fourthly,the net spillover effect of individual commodity futures market is also timevarying,sensitive to structural mutation,bidirectional and asymmetry,which proves once again the important role of copper market and gold market in return spillover and volatility spillover.By studying the spillover effects of return and volatility in major international commodity futures markets,this paper explores the connectedness and the differences in information transmission between markets,aiming to enrich and improve the existing theoretical basis.Based on the above conclusions,it is of great significance for the institutional investors to optimize the asset allocation and reduce the portfolio risk and the regulatory authorities to better grasp the market trend.It is hoped that it can provide some guidance and help to stabilize the market order and promote the harmonious development of the commodity futures market.