Equity-commodity contagion during four recent crises: Evidence from the USA, Europe and the BRICS

Abstract

This study considers the findings of previous research concerning the volatility and correlation transmission between equity and commodity markets and attempts to document evidence of contagion between these markets during four crises using the International Capital Asset Pricing Model (ICAPM). We study existence of contagion transmission mechanism between regional equity markets (USA, Western Europe and the BRICS) and sixteen categories of commodities

Do Volatilities Matter in the Interconnectedness between World Energy Commodities and Stock Markets of BRICS?

“…e lower diversification potentials of the BRICS markets have induced empirical studies to inculcate other financial assets [11,12,[14][15][16]. e broad consensus from these empirical studies has been the higher likelihoods of portfolio diversification, safe haven, or hedge benefits depending on the markets outcome.…”

Optimizing portfolios for the BREXIT: An equity-commodity analysis of US, European and BRICS markets

“…This paper was motivated by the research of Ayadi (2021) and Ayadi et al (2021), as well as the phenomenon of financialization in commodities, with the aim of constructing optimal portfolios consisting of various equities (USA, sixteen European countries, and the BRICS) and commodities (Agricultural Oils, Chemicals, Crude Oil, Electricity, Feeds, Fibers, Forestry Products, Grains, Livestock, Metals, Natural Gas, Oil Seeds, Precious Metals, Seeds, Semi-Conductors, and Softs) during the BREXIT. We followed the lead of previous authors, such as methodology, we calculated optimal weights and hedge ratios for various portfolios, each consisting of an equity factor and a commodity factor.…”

“…In this subsection, and based on the findings of Ayadi (2021) -who documented evidence of contagion between American, European and BBRICS stock markets during the BREXIT; the works of Ayadi et al (2021) who documented contagion between some equity and commodity markets (as well as decoupling for other assets) for various equities and commodities during four crises, we seek to make optimal portfolios which aim is to minimize the risk for investors in times of crisis. To do so, we follow Kroner and Ng (1998) and construct two-asset portfolios with the following weights:…”

“…The period of the study ranges from 1980 to 2012. Using TVP-VAR with stochastic volatility, the authors report significant evidence of volatility spillover from MSCI and crude oil markets 1 The methodology is presented in the empirical framework subsection 2 The methodology is presented in the empirical framework subsection towards commodity markets. These shocks have a short term immediate impact on commodities, which is amplified in the period of the financial crisis.…”

“…Mensi et al (2013),Jebabli et al (2014),Khalfaoui et al (2015), andHasan (2017), who used the Kroner and Ng (1998) methodology to calculate optimal portfolio weights and hedge ratios to test hedging effectiveness Ayadi (2021). provided evidence of equity market contagion from American and European stock markets to the BRICS during the BREXIT, which led to the search for a way to minimize the shock's effects.…”