Commodity markets in flux: examining asymmetric interconnectedness across global crises

Abstract Commodities are key to global trade and play a crucial role in driving economic growth and ensuring market stability. This paper offers valuable insights into the asymmetric interconnectedness between major commodity markets and sheds light on the changing structure of these markets during periods of uncertainty, providing valuable information for investors and policymakers. Using a comprehensive dataset spanning from 10 January 1983 to 26 June 2024, this study analyses the spillover effects among the five key S&P GSCI commodity indices (Energy, Agriculture, Industrial Metals, Precious Metals and Livestock) employing the asymmetric time-varying parameter vector autoregression (TVP-VAR) connectedness methodology. Unlike previous studies, our study sheds light on the nearly four-decade history of key commodities, revealing how they asymmetrically transmit and absorb shocks through various global crises, including financial meltdowns, geopolitical conflicts, trade wars and pandemics. Our findings highlight that energy, industrial metals, and precious metals act as strong net transmitters of both positive and negative shocks, whereas the livestock sector predominantly absorbs these shocks. Additionally, we observe a marked increase in time-varying interconnectedness, particularly during global turmoils, indicating greater synchronization among market participants. Based on these findings, we suggest that policymakers should adopt more adaptive and inclusive strategies to maintain market stability during crises, while investors should adjust their portfolio diversification strategies to evolving market conditions. By analyzing crisis-driven market behavior, our findings provide an important roadmap for controlling risks across commodity markets in future uncertainty periods.