Dynamic correlation and volatility spillovers across Chinese stock and commodity futures markets

Kang, Sang Hoon; Yoon, Seong‐Min

doi:10.1002/ijfe.1750

Cited by 31 publications

(10 citation statements)

References 39 publications

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“…In particular, all average DCCs are below 15%, whereas DCC for gold is the lowest one and is around 11%. This preliminary finding indicates that precious metals could successfully serve as a diversification tool in a portfolio with corn, which is in line with some recent papers (Mirović et al 2017;Kang and Yoon 2019). In addition, all DCC plots have the same distinctive feature, and that is the rise of DCCs around the period of global financial crisis (GFC).…”

Section: Resultssupporting

confidence: 89%

How to combine precious metals with corn in a risk-minimizing two-asset portfolio?

Živkov¹,

Balaban²,

Kuzman³

2021

AGR ECON-CZECH

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This paper tries to find out which precious metal futures are the best hedging tools for corn spot commodity, taking into account three different risk measures – variance (Var), value at risk (VaR), and conditional value at risk (CVaR). For computation purposes, we use an optimal dynamic conditional correlation (DCC) specification for every considered pair. Our findings indicate that portfolio with gold outperforms the other three precious metals (silver, platinum, and palladium) with respect to all three risk metrics. The reason for such findings is two-fold. First, gold has the lowest average dynamic correlation with corn (below 11%), and gold also has the lowest average risk of all precious metals. The second-best combination is corn-platinum, whereas the corn-silver pair gives the worst hedging results. This happens because silver has the highest average dynamic correlation with corn (14.5%), but more importantly, silver is the riskiest commodity, which makes this asset unsuitable for combining with corn. According to the results, the ratio between corn and gold in a two-asset portfolio should be about 27 : 73.

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Section: Resultssupporting

confidence: 89%

How to combine precious metals with corn in a risk-minimizing two-asset portfolio?

Živkov¹,

Balaban²,

Kuzman³

2021

AGR ECON-CZECH

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“…Studies have shown that the heterogeneous structure of PAR 33,2 the commodities market provides investors with the benefits of portfolio diversification (Öztek and Öcal, 2017;Maghyereh et al, 2019;Salisu et al, 2020). The existing literature has measured the dynamic interdependence between financial and commodity markets by applying various measures of connectedness (Shahzad et al, 2017;Corbet et al, 2018;Kang and Yoon, 2020;Zeng et al, 2020). Consequently, our paper contributes to the recent literature that examines the impact of COVID-19 on various financial markets (Akhtaruzzaman et al, 2020;Bouri et al, 2020;Corbet et al, 2020;Sharif et al, 2020;Yarovaya et al, 2020).…”

Section: Introductionmentioning

confidence: 91%

COVID-19 pandemic and connectedness across financial markets

Naeem

Sehrish

Costa

2021

PAR

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Purpose This study aims to estimate the time–frequency connectedness among global financial markets. It draws a comparison between the full sample and the sample during the COVID-19 pandemic. Design/methodology/approach The study uses the connectedness framework of Diebold and Yilmaz (2012) and Barunik and Krehlik (2018), both of which consider time and frequency connectedness and show that spillover is specific to not only the time domain but also the frequency (short- and long-run) domain. The analysis also includes pairwise connectedness by making use of network analysis. Daily data on the MSCI World Index, Barclays Bloomberg Global Treasury Index, Oil future, Gold future, Dow Jones World Islamic Index and Bitcoin have been used over the period from May 01, 2013 to July 31, 2020. Findings This study finds that cryptocurrency, bond and gold are hedges against both conventional stocks and Islamic stocks on average; however, these are not “safe havens” during an economic crisis, i.e. COVID-19. External shocks, such as COVID-19, strengthen the return connectedness among all six financial markets. Research limitations/implications For investors, the study provides important insights that during external shocks such as COVID-19, there is a spillover effect, and investors are unable to hedge risk between conventional stocks and Islamic stocks. These so-called safe haven investment alternatives suffer from the similar negative impact of systemic financial risk. However, during an external shock such as COVID-19, cryptocurrencies, bonds and gold can be used to hedge risk against conventional stocks, Islamic stocks and oil. Moreover, the findings imply that by engaging in momentum trading, active investors can gain short-run benefits before the market processes any new information. Originality/value The study contributes to the emergent literature investigating the connectedness among financial markets during the COVID-19 pandemic. It provides evidence that the return connectedness among six global financial markets, namely, conventional stocks, Islamic stocks, bond, oil, gold and cryptocurrency, is extremely strong. From a methodological standpoint, this study finds that COVID-19 pandemic shock has a significant short-run impact on the connectedness among financial markets.

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“…Singhal et al (2019) found that the usage of oil as inputs in the production process has a significant impact on stock market returns in Mexico, and it occurs through the exchange rate channel as the Mexican economy is heavily dependent upon exports of various industrial products and commodities, including crude oil. A study by Kang and Yoon (2019) presented evidence of unidirectional return and volatility transmission between the Chinese stock market and commodity futures, implying that commodity futures contribute to the role of price discovery in their equity markets.…”

Section: Literature Reviewmentioning

confidence: 99%

Exploring the dynamics of the equity–commodity nexus: A study of base metal futures

Saishree

Padhi

2022

Journal of Futures Markets

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This empirical exercise explores different aspects of the time-varying linkage between the commodity and equity markets in India, focusing on base metal futures. The Dynamic Conditional Correlation model ( 2002) and Diebold-Yilmaz spillover index (2012) are employed to ascertain the presence, pattern, direction, and magnitude of the connectedness between the returns of base metal futures and related equity indices over the period of 2006-2019. The study builds on a less-studied "input" channel of linkage between the two, reckoning with the economic fundamentals of demand-supply interaction. Our results show that 36% of the return forecast error variance originates from spillovers, to which the contribution of equity indices is minimal. It indicates segmentation between the two markets which offer the scope for potential diversification. Further, base metal futures are the net transmitters and equity indices are the net recipients of spillovers. Positive correlations outweigh the negative correlations, in both frequency and magnitude.

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Dynamic correlation and volatility spillovers across Chinese stock and commodity futures markets

Cited by 31 publications

References 39 publications

How to combine precious metals with corn in a risk-minimizing two-asset portfolio?

How to combine precious metals with corn in a risk-minimizing two-asset portfolio?

COVID-19 pandemic and connectedness across financial markets

Exploring the dynamics of the equity–commodity nexus: A study of base metal futures

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