# Tail Risk Transmission: A Study of the Iran Food Industry

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## Abstract

**:**

## 1. Introduction

## 2. Methodology

#### 2.1. Background: Network Models

#### 2.1.1. Degree Centrality

#### 2.1.2. Eigenvector Centrality

#### 2.1.3. Network Visualization

#### 2.1.4. Hierarchical Clustering—Node Segmentation

#### 2.2. Extreme Downside Correlation (EDC)

#### 2.3. Extreme Downside Hedge (EDH)

## 3. Empirical Findings

#### 3.1. Extreme Downside Correlation Analysis of Iran’s Food Industry

#### 3.1.1. Systematic EDC Analysis

#### 3.1.2. Systemic EDC Analysis

#### 3.2. Extreme Downside Hedging of Iran’s Food Industry

#### 3.2.1. Systematic EDH Analysis

#### 3.2.2. Systemic EDH Analysis

#### 3.3. Sensitivity Analysis

## 4. Conclusions

## Author Contributions

## Funding

## Acknowledgments

## Conflicts of Interest

## Appendix A. Results of Sensitivity Analysis

**Figure A3.**EDC matrix over periods: (Jul 2017–Jun 2018), (Jun 2018–May 2019), and (May 2018–Apr 2020).

**Figure A4.**EDH matrix over periods: (Jul 2017–Jun 2018), (Jun 2018–May 2019), and (May 2018–Apr 2020).

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**Figure 2.**Weighted adjacency matrix of Extreme downside correlation (EDC) at $5\%$-quantile level. The light (dark) green color indicates weak (strong) positive correlations.

**Figure 3.**EDC systemic network ($5\%$-quantile level) and associated dendrogram. The size of the vertices corresponds to the node-degrees.

**Figure 4.**EDH estimates for combined systematic and systemic risk model. The light (dark) green indicates weak (strong) positive reactions, and light (dark) red for weak (strong) negative sensitivity. Column labels are $\Delta CVaR$ (Explanatory Variables) and row labels are ${Y}_{i,t}$ (Dependent Variables).

**Figure 5.**EDH systemic network ($5\%$-quantile level) and dendrogram. The links are color-coded to describe the sign of the statistical relationships with green for positive associations and red for co-movements. The size of the vertices corresponds to the node-degrees.

No. | Name | Code | Location | Products |
---|---|---|---|---|

1 | Behshahr Industrial Company | BEH | Tehran | All kinds of vegetable oil |

2 | Glucosan Company | GLN | Tehran | Process corn |

3 | Gorji Biscuit Company | GOJ | Tehran | Biscuit, Wafer, Cracker and Cookie |

4 | Kalber Dairy Company | KLR | Tehran | Diary products |

5 | Mahram Manufacturing Company | MHM | Tehran | Mayonnaise, sandwiches, honey, olives |

6 | Margarine Company | MRN | Tehran | Herbaceous oil, soybean oil, frying oil |

7 | Minoo Industrial Company | MIN | Tehran | Biscuit, Carbonated drinks and Cookies |

8 | Pars Minoo Industrial Company | PMI | Tehran | Chocolate, Cookie, Soft Drinks, Syrup |

9 | Pegah Fars Dairy Company | PFC | Shiraz | Milk and Dairy products |

10 | Salemin Factory | SLM | Tabriz | Biscuit, Chocolate and Confectionery products |

11 | West Azarbaijan Pegah Dairy | AZP | Urmia | Diary Products |

12 | Food Industry Index | FI | Tehran | Food Products |

Code | Mean | Sdev | Min | Max | Skew. | Ex.Kurt |
---|---|---|---|---|---|---|

BEH | 2.8655 | 26.3890 | −112.4748 | 82.0604 | −1.7741 | 7.8269 |

GLN | −3.8449 | 48.1351 | −285.9472 | 69.6142 | −4.0990 | 20.4928 |

GOJ | 6.4953 | 16.7188 | −28.7854 | 89.2357 | 1.6114 | 3.7200 |

KLR | 7.3899 | 21.9543 | −39.6847 | 114.5958 | 1.4579 | 3.0709 |

MHM | 5.2630 | 19.8725 | −80.8469 | 63.3660 | −0.3134 | 2.6338 |

MRN | 4.4412 | 22.5201 | −74.8406 | 85.4551 | −0.1246 | 0.7690 |

MIN | 4.4642 | 23.0606 | −87.6150 | 62.0337 | −0.4916 | 2.0921 |

PMI | 7.5050 | 24.1774 | −60.5344 | 102.8489 | 0.5807 | 2.0994 |

PFC | 8.2288 | 20.7224 | −101.7980 | 64.6445 | 0.0065 | 1.9441 |

SLM | 11.4875 | 18.6729 | −16.3660 | 82.4291 | 1.2085 | 0.7997 |

AZP | 7.7350 | 21.4221 | −56.4672 | 63.8704 | 0.1092 | −0.0489 |

FI | 7.8959 | 13.9899 | −26.8253 | 59.3385 | 1.0293 | 0.5462 |

**Table 3.**Ranking tail correlation coefficients between companies and Food Industry index. The light (dark) green color indicates weak (strong) positive correlations, and red indicates negative correlations.

EDC | Companies |
---|---|

High | GOJ, KLR, AZP, MRN, BEH, PMI |

Low | PFC, MIN, GLN, SLM |

Negative | MHM |

**Table 4.**Centrality Measures for EDC network according to degree and eigenvector score from unweighted and weighted networks. Boldface values indicate the best choice for each metric.

Degree | Eigenvector | |||
---|---|---|---|---|

Unweighted | Weighted | Unweighted | Weighted | |

BEH | 8 | 1.0527 | 0.3205 | 0.2408 |

GLN | 5 | 0.5492 | 0.2015 | 0.1312 |

GOJ | 8 | 1.9159 | 0.3064 | 0.3612 |

KLR | 10 | 2.7267 | 0.3690 | 0.4354 |

MHM | 8 | −0.8734 | 0.3120 | 0.1759 |

MRN | 10 | 2.1929 | 0.3690 | 0.4121 |

MIN | 6 | 1.0105 | 0.2290 | 0.1140 |

PMI | 7 | 2.2648 | 0.2890 | 0.4316 |

PFC | 7 | 0.7739 | 0.2792 | 0.1676 |

SLM | 7 | 1.3670 | 0.2766 | 0.2172 |

AZP | 8 | 1.5752 | 0.3205 | 0.3597 |

**Table 5.**Ranking of companies based on systematic EDH coefficients. The light (dark) green color indicates weak (strong) positive reactions.

EDH Sensitivity | Companies |
---|---|

Strong | GLN, SLM, KLR, BEH, PMI |

Mild | AZP, GOJ |

None | MHM, MRN, MIN, PFC |

**Table 6.**Centrality Measures for EDH systemic. Boldface values indicate the best choice for each metric.

In-Degree | Out-Degree | Hub | Authority | |
---|---|---|---|---|

BEH | 6 | 4 | 0.1952 | 0.2917 |

GLN | 7 | 9 | 0.3837 | 0.3003 |

GOJ | 6 | 10 | 0.4164 | 0.2632 |

KLR | 5 | 7 | 0.3149 | 0.1962 |

MHM | 8 | 6 | 0.2541 | 0.3404 |

MRN | 9 | 6 | 0.2349 | 0.3716 |

MIN | 4 | 8 | 0.3466 | 0.1932 |

PMI | 6 | 5 | 0.2493 | 0.2569 |

PFC | 10 | 5 | 0.2176 | 0.4226 |

SLM | 8 | 8 | 0.3418 | 0.3422 |

AZP | 5 | 6 | 0.2756 | 0.2530 |

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**MDPI and ACS Style**

Mojtahedi, F.; Mojaverian, S.M.; Ahelegbey, D.F.; Giudici, P.
Tail Risk Transmission: A Study of the Iran Food Industry. *Risks* **2020**, *8*, 78.
https://doi.org/10.3390/risks8030078

**AMA Style**

Mojtahedi F, Mojaverian SM, Ahelegbey DF, Giudici P.
Tail Risk Transmission: A Study of the Iran Food Industry. *Risks*. 2020; 8(3):78.
https://doi.org/10.3390/risks8030078

**Chicago/Turabian Style**

Mojtahedi, Fatemeh, Seyed Mojtaba Mojaverian, Daniel F. Ahelegbey, and Paolo Giudici.
2020. "Tail Risk Transmission: A Study of the Iran Food Industry" *Risks* 8, no. 3: 78.
https://doi.org/10.3390/risks8030078