Return connectedness among commodity and financial assets during the COVID-19 pandemic: Evidence from China and the US

Abstract

In this paper, we explore the dynamics of the return connectedness among major commodity assets (crude oil, gold and corn) and financial assets (stock, bond and currency) in China and the US during recent COVID-19 pandemic by using the time-varying connectedness measurement introduced by Antonakakis et al. (2020). Firstly, we find that the total return connectedness of the US commodity and financial assets is stronger than that of the Chinese commodity and financial assets in most cases, and both of them increase rapidly after the outbreak of COVID-19. Secondly, gold is a net transmitter of return shocks in both the Chinese and the US markets before the burst of COVID-19 pandemic, while stock and currency become net transmitters of shocks in both markets after that. Thirdly, corn usually receives the shocks from other commodity and financial assets in both China and the US markets during the COVID-19 epidemic, and the shocks it receives peak during this period, making it the strongest net receiver of shocks. Fourthly, crude oil shifts from a net transmitter to a net receiver of shocks in China after the outbreak of COVID-19, but it remains to be a net transmitter of shocks in the US. Finally, bond changes from a net receiver to a net transmitter of shocks in China after the outbreak of the epidemic, but converts from a net transmitter to a net receiver of shock in the US. The interchangeable roles of the commodity and financial assets suggest flexible regulatory and portfolio allocation strategies should be applied by policy makers and investors.

How does Covid-19 affect global equity markets?

“…However, many governments face a dilemma between restricting the transmission risk of the virus by social distancing and maintaining economic activities. Li et al ( 2021a , b ) investigates the role of institutions in helping governments strike the balance between saving the lives and recovering the economy in 28 provinces in China. They highlight the importance of economic considerations in fighting COVID-19 and the roles of institutions in explaining the variations of government response strategies.…”

“…They observe an enhanced connectedness during the COVID-19 period, suggesting that financial stability is a significant factor in determining the smooth transition to green investments. Li et al ( 2021a , b ) explore the dynamics of the return connectedness among major commodity assets and financial assets in China and the US during the COVID-19 pandemic by using the time-varying connectedness measurement. They find that the total return connectedness of the US commodity and financial assets is stronger than that of the Chinese commodity and financial assets in most cases.…”

Revisiting the financial market interdependence during COVID-19 times: a study of green bonds, cryptocurrency, commodities and other financial markets

“…This has hampered stock indices across the world (Jebabli et al, 2021;Sharma et al, 2021a). Furthermore, from the perspective of the commodities market, extant literature attempts to explore the volatility spillover or the causality between the conventional stock markets and commodities markets (Adekoya and Oliyide, 2021a;Li et al, 2021), with a significant focus on oil (Ghorbel and Jeribi, 2021;Salisu and Obiora, 2021) and gold (Sumer and Ozorhon, 2020;Wang and Wang, 2020). Wang and Wang (2020) access the market efficiency of the S&P 500 Index, gold, Bitcoin and US Dollar Index, during the times of the pandemic and conclude that market efficiency decreases the most for S&P500 and the least for Bitcoin, regarding the latter as more resilient than others in times of crisis.…”

“…, 2021a). Furthermore, from the perspective of the commodities market, extant literature attempts to explore the volatility spillover or the causality between the conventional stock markets and commodities markets (Adekoya and Oliyide, 2021a; Li et al. , 2021), with a significant focus on oil (Ghorbel and Jeribi, 2021; Salisu and Obiora, 2021) and gold (Sumer and Ozorhon, 2020; Wang and Wang, 2020).…”

The asymmetric effect of oil price, news-based uncertainty, and COVID-19 pandemic on equity market

“…Because of such measures to counter the spread of COVID, the world has also experienced the counter effects that the world has borne ( Nguyen et al, 2021 ). Such counter effects which adversely disrupted the whole economic activities include (but were not limited to) a credit crunch where there was a deficit in the demand and supply of the cash ( De Vito and Gomez, 2020 ); a significant increase in the ratio of bankruptcies ( Akhtaruzzaman et al, 2019 ); increase in the levels of debts ( Umar et al, 2021a ; Zhang et al, 2020 ); increased level of disruptions and volatilities in the stocks ( Umar et al, 2021b , 2022 ; Zaremba et al, 2020 ) and comparatively lower level of returns in stocks ( Al-Awadhi et al, 2020 ; Li et al, 2021 ; Umar et al, 2021c ), thus disturbing the whole supply chain ( Nguyen et al, 2021 ).…”