Copula-based local dependence among energy, agriculture and metal commodities markets

This paper studies the extreme dependencies among energy, agriculture and metal commodities markets, with an emphasis on local co-movements. By applying a novel, copula-based, local Kendall’s tau approach to measure nonlinear local dependence in regions, we identified asymmetric co-movements in and between bull and bear markets, as well as the changing trend in the degree of co-movements. Starting from a non-parametric mixture copula, we found that commodities markets’ co-movements increase in extreme situations. In addition, we found a stronger dependence between energy and other commodities markets at lower tails. Therefore, we showed that the energy market can offer diversification solutions for risk management in the case of extreme bull market events. •We study extreme dependencies among energy, agriculture and metal commodities markets.•We identify non-parametric mixture copulas that better fit the pair-wise combinations.•We use copula-based local Kendall’s tau approach to measure nonlinear local dependence.•Energy-pairs of commodity indices exhibit a stronger dependence at lower tails.•Upper tails Kendall’s tau plot in quantiles shows asymmetric co-movements in the energy-metal pair.