International Commodity Financialization And Systemic Risk

In the early 2000 s,the financialization of international commodities developed rapidly.Financialization changes the formation of international commodity market prices and risk linkage mechanism.Commodities gradually integrate into the global financial system,showing sharp price fluctuations and high risk linkage with the traditional financial markets.Meanwhile,China is in the critical stage of market reform.It is important for China’s economic and social stability to prevent international financial risks through the commodity price channel and ensure financial security.Therefore,it is of great theoretical and practical significance to explore the performance,driving mechanism and influence of systemic risks in the international commodity market under the background of financialization.Based on the above reasons,this paper firstly reviews the existing literature on commodity financialization and systemic risk,defines relevant concepts,and clarifies the impact mechanism of financialization on systemic risk in commodity markets.From the basic facts and phenomena such as the change of investor structure,commodity prices and the linkage with traditional financial market prices,this paper demonstrates the development process and the influence of international commodity financialization.In this context,this paper quantifies the systemic risk in international commodity markets,and introduces economic and financial variables to identify the main drivers and mechanisms of systemic risk in international commodity markets.Furthermore,taking the most financialized crude oil market as an example,this paper analyzes the position of Chinese crude oil market in the international crude oil system by building the risk spillover network among domestic and foreign crude oil markets.Finally,based on the research findings,it provides corresponding risk prevention suggestions for investors,regulators and policy makers.The research conclusions of this paper are divided into the following points:First,the financialization of international commodities is deepening,and market price fluctuations and linkage with traditional financial markets are increasing.Around 2004 is an important node in the process of international commodity financialization.Since then,the number of institutional investors in the market has increased rapidly,and the financialization of the international commodity market has accelerated.Among them,energy is the market with the fastest development of financialization,and the price shows an upward trend of fluctuation.At the same time,the energy market and the traditional financial market price linkage increases.Second,the systemic risks of international commodity markets increase with financialization,and the WTI crude oil market gradually becomes the dominator of the risk.But according to the gas market,sustained supply and stable supplydemand fundamentals can partially offset the impact of financialization.When the degree of financialization is relatively low,the international commodity-traditional financial system is centered on the traditional financial markets,and the distance between markets is far.The risk correlation and dependence are mainly concentrated among the same type of commodity markets.With the development of financialization,risk transmission is no longer restricted by market categories,and the systemic risks in the commodity markets intensify.The system begin to take WTI crude oil as the core market.Moreover,whereas the natural gas market is less vulnerable to the development of financialization.The reason is that the shale gas revolution has led to a significant increase in natural gas production capacity,with stable supply-demand fundamentals.It is worth noting that the 2008 financial crisis is the key moment that triggers the impact of financialization and leads to the rise of systemic risk in commodity markets.In addition,there is no "definancialization" of commodity markets from the perspective of systemic risk.Third,with the rapid development of the financialization of the international commodity markets,the efficiency of information absorption is improved,and sentiment indicators become the main drivers of systemic risks in the international commodity markets.The participants in commodity and traditional financial markets absorb information,and then change the sentiment of the participants on the risk transmitter.In turn,it affects the investment behavior of participants in both markets,and promotes the change of systemic risk between commodity markets and traditional financial markets.Fourth,the domestic and international crude oil market has close risk spillover relationship,but China’s crude oil market has a low status in the international crude oil system,so the negative impact of international commodity financialization has a significant impact on China through risk spillovers.In the long term,China’s crude oil market is vulnerable to the change of the volatility of international crude oil markets.In the short term,China’s crude oil market is still a net receiver of risks in the international crude oil system,although the status of risk spillover has been improved.The main contributions of this paper are as follows:(1)Through literature review,this paper summarizes the existing concept of "commodity financialization" and redefines relevant concept.At the same time,based on the theoretical research,this paper comprehensively analyzes the driving mechanism of financialization on the systemic risk of the commodity markets.(2)In this paper,novel network methods are adopted to describe the systemic risks in the international commodity market and the risk spillovers in the domestic and foreign crude oil markets.It enriches the existing research methods related to cross-market risk linkage of commodities.At the same time,the controversial issues are also explained,such as the time node of rapid rise of risk linkage between international commodity market and traditional financial market and "definancialization".(3)This paper focuses on the drivers of systemic risk between international commodity markets and traditional financial markets.Based on a relatively highfrequency analysis framework,this paper identifies the main driving factors and underlying mechanisms of systemic risk in international commodity market.