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This paper analyses the volatility transmission from changes in prices in oil and developed stock markets to emerging markets. We test for volatility contagion from these two factors while allowing for interaction between them in order to account for diversification effects using the M-GARCH framework in a traditional two-factor market model. We find evidence that for all the periods under observation the covariance between developed markets and oil prices is negative. This negative covariance leads to a diversification effect, which lowers the impact of developed market prices on the systemic risk of emerging markets and gives support for the decoupling hypothesis concerning emerging market volatility during the beginning of the global financial crisis (GFC).

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In times of exogenous systemic shocks, such as the COVID-19 pandemic, it is important to identify hedge or safe haven assets. Therefore, this paper analyzes changes in the idiosyncratic risk of Bitcoin in a portfolio of commodities and global stocks. For this purpose, the M-GARCH model employed considers the interdependence among all the portfolio assets by using a time-varying asset pricing framework. This framework measures the impact of commodities and global stock prices as sources of systemic risk for Bitcoin returns before and after the COVID-19 pandemic. The evidence suggests that during the COVID-19 pandemic, the effects of changes in commodities and global prices on the idiosyncratic risk of Bitcoin were statistically significant. The idiosyncratic risk of Bitcoin measured as a percentage of total variance not accounted for by the proposed model rose from 86.06% to 95.05% during the pandemic. These results are in line with previous studies regarding the properties of Bitcoin as a hedge or safe haven asset for a portfolio composed of commodities and global stocks.