Topological Properties of International Commodity Market: How Uncertainty Affects the Linkages?

Abstract

The study aims to explore the network topology of the international commodity market by examining the interconnections among 21 commodity futures across various categories, including energy, precious and industrial metals, and agriculture. We analyze the market structure of these commodity futures under both low and high uncertainty conditions to assess whether uncertainty impacts the commodity market structure. To do this, we employ the Minimal Spanning Tree (MST) and Hierarchical Tree (HT) methods. Our empirical findings, based on data from January 2014 to March 2023, reveal that energy commodities are not positioned at the center of the market; rather, agricultural commodities take this central role. In terms of uncertainty, the commodity market topology during periods of high uncertainty is more integrated than during times of low uncertainty, indicating that higher uncertainty leads to a more synchronized movement of commodities. These insights provide valuable guidance for traders, investors, and policymakers.