Higher-order contagion and decoupling between commodity and sectoral stock markets: The role of COVID-19 and geopolitical shocks

This study examines whether and to what extent economic sectors in advanced and emerging markets experience contagion or decoupling from commodity markets during major global and geopolitical shocks. Extending the existing contagion and decoupling literature, the study employs a unified framework that jointly evaluates contagion and decoupling through statistically significant increases or decreases in correlation and higher-order co-moments during crisis periods. This approach allows both strengthening and weakening cross-market dependence to be examined within a common analytical framework while accounting for asymmetric and heavy-tailed return dynamics. Empirical evidence indicates that, among the three crisis episodes considered, the COVID-19 pandemic constitutes the most severe systemic shock, generating widespread contagion from commodity markets to economic sectors, with effects markedly stronger in advanced economies than in emerging markets. In contrast, the Israel–Palestine conflict represents the weakest episode, during which cross-sector linkages are predominantly characterized by decoupling, particularly in emerging markets. Analysis across source commodity markets further reveals that energy plays a dominant role in transmitting contagion, whereas industrial metals emerge as the primary driver of decoupling. Finally, contagion effects are shown to operate mainly through higher-order dependence channels, while decoupling is detected through both linear and higher-order co-moment linkages, highlighting fundamental differences in the underlying transmission mechanisms.