Tail risk market spillovers of oil to agricultural commodities: A time-frequency quantile approach

The interplay between commodities and oil prices provides a trade-off for investors and consumers. However, the increasing interconnectedness between these two series helps investors to design efficient investment strategies. Therefore, in this paper, the risk spillovers from oil market prices to that of agricultural commodities, namely, corn, wheat, soybeans, sugar, cotton, cocoa, coffee, lean hogs, and live cattle for the period spanning from May 1987 to December 2023 was investigated. For the analysis, we employ a quantile frequency connectedness approach, our findings reveal that under all market conditions (normal, bearish, and bullish) corn, wheat, and soybean are the return spillovers’ net transmitters, but sugar is a consistent net shocks receiver across all frequencies. Furthermore, agricultural commodities receive oil shocks from WTI during normal market conditions. At lower market conditions, the connectedness between commodities and oil is weaker than that of extreme market conditions (higher quantiles). Moreover, the network plots show that short-run connectedness dominates the long-run connectedness at price returns extremes. Similarly, our finding reports significant implications for policymakers, portfolio managers, and investors to diversify their investments in different market conditions. JEL codes: C22 F21 G11 G13 G32