Moments-based spillovers across gold and oil markets

Abstract

In this paper, we use intraday futures market data on gold and oil to compute returns, realized volatility, volatility jumps, realized skewness and realized kurtosis. Using these daily metrics associated with two markets over the period of December 2, 1997 to May 26, 2017, we conduct linear, nonparametric, and time-varying (rolling) tests of causality, with the latter two approaches motivated due to the existence of nonlinearity and structural breaks. While, there is hardly any evidence of spillovers between the returns of these two markets, strong evidence of bidirectional causality is detected for realized volatility, which seems to be resulting from volatility jumps. Evidence of spillovers are also detected for the crash risk variables, i.e., realized skewness, and for realized kurtosis as well, with the effect on the latter being relatively stronger. Moreover, based on a moments-based test of causality, evidence of co-volatility is deduced, whereby we find that extreme positive and negative returns of gold and oil tend to drive the volatilities in these markets. Our results have important implications for not only investors, but also policymakers.

Time–frequency co-movement and risk connectedness among cryptocurrencies: new evidence from the higher-order moments before and during the COVID-19 pandemic

“…The asymmetric characteristic of the volatility connectedness among cryptocurrencies excavated in this study is supported by the works of Mensi et al (2019b), Iqbal et al (2021), Li et al (2022), Apergis (2022), andAhn (2022). Our findings also add to the previous works of Gomez-Gonzalez et al (2022), Bonato et al (2020, Dai et al (2021), Bouri et al (2021a), Ahmed (2022), Gkillas et al (2022), and Cui et al (2022 that explored the higher-order moment risk spillovers among financial markets. We have profoundly revealed the higher-moment risk connectedness trajectories among leading cryptocurrencies and identified the major net transmitters and receivers of risk spillovers.…”

“…The importance of high-order moments has been widely confirmed in financial studies, such as portfolio optimization (Zhao et al 2021;Gülten and Ruszczyński 2015;Liu et al 2020), return prediction (Jia et al 2021), and asset pricing (Harvey and Siddique 2000;Nguyen and Puri 2009). Indeed, many studies have examined the higher-order moment comovement and risk spillovers among various financial markets, such as between developed and emerging stock markets (Del Brio et al 2017), commodity and global financial markets (Gomez-Gonzalez et al 2022), gold and oil markets (Bonato et al 2020), carbon and energy markets (Dai et al 2021), stock and commodity markets (Bouri et al 2021a;Ahmed 2022), crude oil, gold and Bitcoin (Gkillas et al 2022) and oil and commodity markets (Cui et al 2022). Second, financial markets are typically made up of a diverse range of market participants with varying investment horizons.…”

Developing a crisis model based on higher-order moments

“…So, the paper [19] addresses the volatility and skewness of the side effects of the risk premium in the stock market, where the risk premium is defined as the difference between risk-neutral and realized moments. More locally, using the example of gold and oil, this issue is discussed in the article [20]. This article analyzes the causal relationship not only between earnings and the overall variance of the gold and oil markets, but also jumps of volatility, skewness, and kurtosis.…”

Forecasting oil and gold volatilities with sentiment indicators under structural breaks

“…This in turn has triggered an interest in alternative investment opportunities, particularly in the commodity market (Bampinas and Panagiotidis, 2015;Bahloul et al, 2018), as investors seek diversification opportunities by supplementing their traditional portfolios with positions in commodities, oil in particular. Due to the recent financialization of the commodity market (Tang and Xiong, 2012;Silvennoinen and Thorp, 2013;Bonato, 2019), which has resulted in an increased participation of hedge funds, pension funds, and insurance companies in commodity investments, crude oil is now considered a profitable alternative instrument in the portfolio decisions of financial institutions (Büyükşahin and Robe, 2014;Antonakakis et al, 2018;Bonato et al, 2020a). Not surprisingly, the market size of crude oil investments stands at $1.7 trillion per year at current spot prices, with 34 billion barrels produced each year and over 1.7 trillion barrels of crude oil in remaining reserves.…”