Beijing Institute of Mathematical Sciences and Applications

Ruize Gao , Liyan Han , Zhen Li , Fei Long , Dongbo Shi , Ke Tang , Qi Zhang

Li Wan

Friday, September 12, 2025 3:00 PM - 4:00 PM

A3-2-303

Zoom 435 529 7909 (BIMSA)

The increasing frequency and intensity of geopolitical risks pose significant threats to global financial markets and have garnered widespread attention in recent academic literature. Given that commodity futures combine both commodity and financial attributes, geopolitical shocks can trigger tail risks through both fundamental (supply and demand) and non-fundamental (financial) channels. As a key part of China’s financial system, the commodity futures market also plays crucial roles in price discovery, risk sharing, and information transmission. The significant price volatility in this market exerts a considerable impact on the real economy. Therefore, the tail risk of the commodity futures market cannot be overlooked. With a specific interest in China’s commodity futures market, this paper aims to address the following questions: (1) How can China’s geopolitical risk perception be measured? (2) How do geopolitical shocks influence the tail risk of the commodity futures market? To address these questions, we first construct an innovative proxy for China’s geopolitical risk perception using stock return data. Specifically, this study selects 16 major petroleum and petrochemical stocks, and then employs econometric models to extract a common factor from their idiosyncratic volatilities, referred to as the “common volatility shocks” factor. This factor can be understood as the unpredictable common component in the volatility of China’s petroleum and petrochemical stocks, reflecting the geopolitical shocks perceived by China’s capital market. Then, we employ quantile regressions to assess the impact of geopolitical shocks on the downside and upside risks of commodity futures.