A partial correlation-based connectedness approach: Extreme dependence among commodities and portfolio implications
提出基于偏相关的关联性方法，研究22种大宗商品在正常和极端市场条件下的方向性关联，发现该方法比传统方法更早识别危机，且基于此构建的投资组合风险调整后表现更优。
We propose a partial correlation-based connectedness approach to study the directional connectedness under normal and extreme market conditions among the returns of 22 commodities and compare it with the well-known Diebold and Yilmaz (i.e. generalized forecast error variance decomposition (GFEVD)) connectedness approach estimated at the mean and tails. Considering four groups of commodities, namely energy, agricultural, precious metals, and industrial metals, and daily data from September 1, 2005 to June 5, 2024, covering various crisis periods, we draw filtered networks and measures of directional connectedness. The main results are summarized as follows. Firstly, the total connectedness index captures the significant commodities related shocks, and intensifies during crises episodes, notably at the extreme lower quantile. Secondly, using partial correlations in the approach of connectedness leads to a surge of the total connectedness level at the extreme lower quantile and identifies the beginnings of major crises earlier than the GFEVD measure of connectedness. Thirdly, the connectedness structure of commodities based on partial correlation is unstable during turbulent market conditions, a feature that is ignored when the GFEVD approach of connectedness is used. Fourthly, in terms of practical implications, the partial correlation-based connectedness portfolio outperforms the GFEVD based minimum connectedness portfolio on a risk adjusted basis. • We proposed a PCBC approach to study connectedness in 22 commodity returns under normal & extreme market conditions. • PCBC TCI detects major commodity shocks & surges during crises, signaling heightened market stress effectively. • PCBC TCI identifies crisis onset earlier than GFEVD, offering a more responsive measure of market turmoil. • PCBC portfolio outperforms GFEVD-based minimum connectedness portfolio on risk-adjusted basis, improving efficiency.