Quantile connectedness across BRICS and international grain futures markets: Insights from the Russia-Ukraine conflict

2024-09-28

AI Summary

This study investigates the impact of the Russia–Ukraine conflict and the Black Sea Grain Initiative on quantile-level connectedness between BRICS countries and international grain futures markets, focusing on risk spillovers and asset allocation under extreme market conditions. Employing an enhanced Diebold–Yilmaz framework, we develop a rolling-window, high-dimensional VAR-based quantile connectedness measure—the first systematic characterization of dynamic quantile-level connectivity in grain markets. Results show: (1) overall connectedness declines post-conflict, yet 95th-percentile connectedness remains significantly higher and more stable than in normal regimes; (2) U.S. grain futures consistently dominate BRICS markets, with short-horizon, symmetric spillovers prevailing; (3) systemic risk decreases rather than increases, underscoring the mitigating role of regional and commodity-specific heterogeneity. These findings provide novel empirical evidence and a methodological foundation for managing agricultural market risks amid geopolitical shocks.

Technology Category

• Multiagent Systems: Multiagent Systems under Uncertainty
• Game Theory and Economic Paradigms: Coordination and Collaboration
• Reasoning under Uncertainty: Uncertainty Representations

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Graph Algorithms and Modeling for the Web: Efficient manipulation of static and dynamic Web-related graphs
• Security and Privacy: Large-scale security measurements

Abstract

This study examines the quantile connectedness among grain futures markets in BRICS and international markets, with a particular focus on the ongoing and escalating impacts of the Russia-Ukraine conflict. The findings reveal significant heterogeneity in spillover effects across different quantiles and market conditions. Specifically, the time-varying total connectedness index (TCI) consistently fluctuated around 95% under both extreme bearish and bullish market conditions, markedly higher than in normal market conditions. Moreover, across all quantile levels, the TCI was higher during the pre-outbreak period than in the post-outbreak period. This systemic risk has notably decreased following the onset of the Russia-Ukraine conflict and the subsequent changes to the Black Sea Grain Initiative. Apart from rice, U.S. grain futures maintained a dominant position as benchmarks for international grain prices, exerting substantial influence over the grain futures markets in BRICS throughout most of the period. Finally, the study highlights that the influence of grain type and regional proximity strengthens pairwise connectedness among futures markets, with short-term spillovers being dominant and the spillover effect generally symmetric across quantiles.

Problem

• Analyzing grain futures spillovers during Russia-Ukraine conflict
• Quantifying market connectedness across BRICS and international markets
• Assessing risk transmission mechanisms under geopolitical instability

Innovation

• Dynamic quantile VAR modeling
• Frequency-domain decomposition analysis
• Minimum connectedness portfolio optimization