The impact of the Russia-Ukraine conflict on the extreme risk spillovers between agricultural futures and spots

ArXiv ID: 2310.16850 “View on arXiv”

Authors: Unknown

Abstract

The ongoing Russia-Ukraine conflict between two major agricultural powers has posed significant threats and challenges to the global food system and world food security. Focusing on the impact of the conflict on the global agricultural market, we propose a new analytical framework for tail dependence, and combine the Copula-CoVaR method with the ARMA-GARCH-skewed Student-t model to examine the tail dependence structure and extreme risk spillover between agricultural futures and spots over the pre- and post-outbreak periods. Our results indicate that the tail dependence structures in the futures-spot markets of soybean, maize, wheat, and rice have all reacted to the Russia-Ukraine conflict. Furthermore, the outbreak of the conflict has intensified risks of the four agricultural markets in varying degrees, with the wheat market being affected the most. Additionally, all the agricultural futures markets exhibit significant downside and upside risk spillovers to their corresponding spot markets before and after the outbreak of the conflict, whereas the strengths of these extreme risk spillover effects demonstrate significant asymmetries at the directional (downside versus upside) and temporal (pre-outbreak versus post-outbreak) levels.

Keywords: Copula-CoVaR, Tail dependence, ARMA-GARCH-skewed Student-t, Risk spillover, Extreme risk, Commodities (Agricultural Futures)

Complexity vs Empirical Score

• Math Complexity: 8.0/10
• Empirical Rigor: 7.0/10
• Quadrant: Holy Grail
• Why: The paper employs advanced econometric methods like ARMA-GARCH-skewed Student-t and Copula-CoVaR, involving significant mathematical modeling and statistical inference. Empirically, it utilizes real-world agricultural futures/spot data from multiple commodities, applies rigorous statistical testing (K-S test), and analyzes pre- and post-conflict periods, indicating substantial data processing and implementation efforts.

  flowchart TD
    A["Research Goal: Impact of Russia-Ukraine conflict<br>on extreme risk spillovers between<br>agricultural futures and spots"] --> B["Data: Pre- & Post-conflict periods<br>Four agricultural markets:<br>Soybean, Maize, Wheat, Rice"]
    
    B --> C["Step 1: ARMA-GARCH-skewed Student-t Model"]
    
    C --> D["Step 2: Tail Dependence Structure<br>via Copula Method"]
    
    D --> E["Step 3: Extreme Risk Spillover<br>via Copula-CoVaR Method"]
    
    E --> F{"Key Findings"}
    
    F --> G["1. Tail dependence structures reacted<br>to the conflict across all four markets"]
    F --> H["2. Conflict intensified risks<br>most severely in Wheat market"]
    F --> I["3. Asymmetric risk spillovers observed:<br>Downside vs. Upside<br>Pre-outbreak vs. Post-outbreak"]