Tail risk contagion and connectedness between crude oil, natural gas, heating oil, precious metals, and international stock markets

Abstract

We apply the qunatile vector autoregression (QVAR) connectedness and frequency causality methods to investigate tail risk contagion, quantile dependency, and causality linkages among the spot prices of equity, precious metals, and energy commodity markets between 2002 and 2024. Our findings indicate that the average amount of unexpected losses for stock markets is lower than that for other markets. Furthermore, our analysis of tail risk spillovers shows that downside risks are primarily driven by the contributions of others, with the most significant impact occurring when the tail risk is at its lowest. The total downside risks associated with connectedness are greater for lower quantiles and stock markets typically serve as the primary transmitters of shocks across all quantiles. During financial crises, heterogeneous and event-dependent risk spillovers strengthen, but not during pandemics or geopolitical incidents.