This article uses graph theory to provide novel evidence regarding market integration, a necessary condition for systemic risk to appear. Relying on daily futures returns covering a 12-year period, we examine cross- and inter-market linkages, both within the commodity complex and between commodities and other financial assets. In such a high dimensional analysis, the graph theory enables us to understand the dynamic behaviour of our prices system. We show that energy markets - as a whole - stand at the heart of this system. We also establish that crude oil is itself at the center of the energy complex. Finally, we provide evidence that commodity are becoming more integrated over time.
The vertical bars on the black lines of the first graph show the uncertainty of each monthly mean based on the observed variability of CO2 in different weather systems as they go past the top of Mauna Loa. This is manifest in the deviations of daily means from a smooth curve that follows the seasonal cycle [Thoning, 1989]. We take into account that successive daily means are not fully independent, the CO2 deviation on most days has some similarity to that of the previous day. If there is a missing month, its interpolated value is shown in blue.
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