Multi‐Frequency Information Flows between Global Commodities and Uncertainties: Evidence from COVID‐19 Pandemic

Abstract

Owing to the adverse impact of the COVID-19 pandemic on world economies, it is expected that information flows between commodities and uncertainties have been transformed. Accordingly, the resulting twisted risk among commodities and related uncertainties is presumed to rise during stressed market conditions. Therefore, investors feel pressured to find safe haven investments during the pandemic. For this reason, we model a mixture of asymmetric and non-linear bi-directional causality between global commodities and uncertainties at different frequencies through the information flow theory. Consequently, we utilise the complete ensemble empirical mode decomposition with adaptive noise (CEEMDAN) and the Rényi effective transfer entropy techniques to establish the dynamic flow of information. The intrinsic mode functions (IMFs) from the CEEMDAN are carefully extracted into multi-frequencies through cluster analysis to reconstruct the series into high, medium, and low frequencies in addition to the residue. We utilise daily data from December 31st, 2019, to March 31st, 2021, to provide insights into the COVID-19 pandemic. The correlation coefficients and variances demonstrate that the high frequency (IMFs 1–4) which measures the short-term dynamics is the dominant frequency, suggesting short-lived market fluctuations relative to real economic growth for institutional investors. Moreover, outcomes from the multi-frequency entropy indicate a negative bi-directional causality of information flow between global commodities and uncertainties, especially in the long term. Generally, the findings present pertinent inferences for portfolio diversification, policy decisions, and risk management schemes for global commodities and markets volatilities. We, therefore, advocate that market volatilities act as effective hedges for global commodities, and they clearly act as balancing assets rather than substitutes in the long-term dynamics of the COVID-19 pandemic. Investors who delayed in investing within financial markets of commodities and market volatilities are likely to minimise their portfolio risks.

Vulnerability of Sustainable Islamic Stock Returns to Implied Market Volatilities: An Asymmetric Approach

“…Conversely, Lin and Su [21] found that negative shocks between implied volatility from crude oil and Islamic stocks are more prominent at higher quantiles. Moreover, outcomes generated from the current study do not absolutely deviate from the ones generated by prior studies on conventional assets as well as commodities [5,13,14,18].…”

“…is opens up a gap to further assess the asymmetric effect of implied market volatilities which are forwardlooking. Application of implied volatilities has gained massive attention with conventional stocks [13,14] and cryptocurrencies [15][16][17], as well as commodities [5,18,19]. It is normally found from these studies that negative shocks are mostly transmitted from the implied market volatilities to these assets demonstrating diversification, hedge, or safe haven benefits depending on the market conditions as a result of portfolio formation.…”

“…Some of the implied volatilities that have spillover effects on most financial markets around the world include the US VIX as a significant measure of investor fear and expectations [14], implied volatility in the energy markets, emerging markets volatility, and developed markets volatility. ese implied volatilities have been touted to have ravaging impact on financial markets [5,13,16,18,24] from which Islamic stocks could be more sensitive as a result of contagion effect from markets interactions.…”

“…We select four relevant implied market volatilities to integrate shocks from developed market, emerging market, the US market, and energy market. Most of these volatilities have been touted to be significant risk transmitters in several conventional assets [5,13,14,18], but a few studies on Islamic stocks utilise specific or few implied volatility indices [20][21][22] to ensure a myopic view on the nexus. We do this to draw insights into effective portfolio reconstructions, redeployment, and rebalancing towards risk minimisation strategies.…”

Asymmetric Exchange Rate Pass‐Through to Consumer Prices in Ghana: Evidence from EMD‐NARDL Approach

“…Since errors could be introduced in the denoised data, upon which the NARDL was applied, further studies may quantify the extent of errors in a decomposed-based empirical investigation to contribute to prior studies [34][35][36][37][38].…”