Contemporaneous and lagged spillovers between agriculture, crude oil, carbon emission allowance, and climate change

TL;DR

This paper investigates the interconnected spillovers among agriculture, crude oil, carbon allowances, and climate change using a novel approach, highlighting the dominant role of contemporaneous dynamics and the significant influence of climate change on these markets.

Contribution

It introduces a new R^2 decomposed connectedness method to analyze dynamic spillovers among multiple markets, emphasizing the predominance of contemporaneous effects.

Findings

Contemporaneous dynamics mainly drive overall market spillovers.

Climate change significantly influences other markets.

Corn is the largest risk contributor; barley is the main risk receiver.

Abstract

In this paper, we examine the dynamic spillovers among the crude oil, carbon emission allowance, climate change, and agricultural markets. Adopting a novel $R^2$ decomposed connectedness approach, our empirical analysis reveals several key findings. The overall TCI dynamics have been mainly dominated by contemporaneous dynamics rather than the lagged dynamics. We also find climate change has significant spillovers to other markets. Moreover, there are heterogeneous spillover effects among agricultural markets. Specially, corn is the biggest risk contributor to this system, while barley is the major risk receiver of shocks.