Emissions Prices, Commodity Futures, Equity Prices, and Geopolitical Risks Dependence Structure: Implications for Portfolio Diversification

Chi Keung Lau*, Alaa M. Soliman, Dongna Zhang, Nicholas Apergis

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


This study examines the short- and medium-run dependence structures across carbon emissions prices, commodity futures, equity prices, and geopolitical uncertainty in the case of the BRICS countries. Previous studies have focused on the co-movement between commodity futures and equity prices, with a few attempts at capturing the economic uncertainty in that relationship but failed to look at the broader context of both emission prices and geopolitical uncertainty. This study employs the spillover index developed by Diebold and Yilmaz and data spaning from January 3, 2008, to October 31, 2021 to identify the dependence structure across ETS, commodity futures, equity prices, and geopolitical uncertainty (GPR). Our key findings suggest that the contribution of the MOEX Russia Index to the natural gas prices return is the highest. As the ETS is concerned, the GPR of China plays the most crucial role compared to other BRICS countries. Comparing energy commodities (e.g. ETS and natural gas), the net pairwise spillover effects of oil to metal commodities are more evident. Among the GPRs of BRICS countries, China, India, Russia, and Brazil have a positive net pairwise directional connectedness transmitted to South Africa. For stakholders working in commodity trading, the insights obtained from this research is essential for developing strategies that lessen the effects of geopolitical risks and help in promoting more resilient and stable commodity markets.
Original languageEnglish
Pages (from-to)1-17
Number of pages17
JournalEmerging Markets Finance and Trade
Early online date12 Jun 2024
Publication statusE-pub ahead of print - 12 Jun 2024

Cite this