Volatility Spillover Among Equity and Commodity Markets

Aziz, Tariq; Sadhwani, Ranjeeta; Habibah, Ume; Janabi, Mazin A. M. Al

doi:10.1177/2158244020924418

Cited by 27 publications

(15 citation statements)

References 32 publications

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“…The results indicate that the Singaporean market is subject to the contagion effect not only in Asian countries (Lee, 2009; Sariannidis et al , 2010) but also from different asset classes. As neither bitcoin nor gold can provide an adequate hedge against Singaporean stocks, investors may need to seek alternative asset classes for diversification such as oil, gas and rice (Aziz et al , 2020). Financial assets are becoming increasingly interdependent and opportunities to diversify risk exposure are becoming scarce.…”

Section: Resultsmentioning

confidence: 99%

“…Several papers document the spillover effect in Southeast Asian markets during the COVID-19 pandemic. However, they are limited to shocks from the US market to the region (Aziz et al, 2020;Le and Tran, 2021) and volatility clustering within each domestic market (Mishra and Mishra, 2020). The present study investigates contagion effects among the two leading equity markets in Southeast Asia, golda traditional safe-haven asset and bitcoina new digital gold, during the COVID-19 pandemic.…”

Section: Increased Interdependence During the Covid-19 Pandemicmentioning

confidence: 99%

“…As neither bitcoin nor gold can provide an adequate hedge against Singaporean stocks, investors may need to seek alternative asset classes for diversification such as oil, gas and rice (Aziz et al, 2020). Financial assets are becoming increasingly interdependent and opportunities to diversify risk exposure are becoming scarce.…”

Section: Return and Volatility Spillover Between The Singaporean Mark...mentioning

confidence: 99%

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Nexus between Southeast Asian stock markets, bitcoin and gold: spillover effect before and during the COVID-19 pandemic

Kakinuma

2021

JABS

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Purpose This study aims to provide empirical evidence on the return and volatility spillover effects between Southeast Asian stock markets, bitcoin and gold in the periods before and during the COVID-19 pandemic. The interdependence among different asset classes, the two leading stock markets in Southeast Asia (Singapore and Thailand), bitcoin and gold, is analyzed for diversification opportunities. Design/methodology/approach The vector autoregressive-Baba, Engle, Kraft, and Kroner-generalized autoregressive conditional heteroskedasticity model is used to capture the return and volatility spillover effects between different financial assets. The data cover the period from October 2013 to May 2021. The full period is divided into two sub-sample periods, the pre-pandemic period and the during-pandemic period, to examine whether the financial turbulence caused by COVID-19 affects the interconnectedness between the assets. Findings The stocks in Southeast Asia, bitcoin and gold become more interdependent during the pandemic. During turbulent times, the contagion effect is inevitable regardless of region and asset class. Furthermore, bitcoin does not provide protection for investors in Southeast Asia. The pricing mechanism and technology behind bitcoin are different from common stocks, yet the results indicate the co-movement of bitcoin and the Singaporean and Thai stocks during the crisis. Finally, risk-averse investors should ensure that gold constitutes a significant proportion of their portfolio, approximately 40%–55%. This strategy provides the most effective hedge against risk. Originality/value The mean return and volatility spillover is analyzed between bitcoin, gold and two preeminent stock markets in Southeast Asia. Most prior studies test the spillover effect between the same asset classes such as equities in different regions or different commodities, currencies and cryptocurrencies. Moreover, the time-series data are divided into two groups based on the structural break caused by the COVID-19 pandemic. The findings of this study offer practical implications for risk management and portfolio diversification. Diversification opportunities are becoming scarce as different financial assets witness increasing integration.

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Section: Resultsmentioning

confidence: 99%

Section: Increased Interdependence During the Covid-19 Pandemicmentioning

confidence: 99%

Section: Return and Volatility Spillover Between The Singaporean Mark...mentioning

confidence: 99%

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Nexus between Southeast Asian stock markets, bitcoin and gold: spillover effect before and during the COVID-19 pandemic

Kakinuma

2021

JABS

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“…Hagiwara and Herce (1999) supported endogenous sources of exchange rate volatility. McKenzie and Mitchell (2002) believed that in capturing exchange rates' stylized features of volatility, the GARCH (1, 1) model captured the presence of symmetric responses (Aziz et al, 2020), and will be preferred. Kwek and Koay (2006) explored the conditional volatility of the daily spot nominal exchange rate and found it reasonable to use the GARCH class as an explanatory model.…”

Section: Literature Reviewmentioning

confidence: 99%

The Impact of Trading Information Sets on Exchange Rate Change and Volatility: Evidence From Taiwan

Liu

2021

Sage Open

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This study explores the Taiwan Dollar (TWD) as the currency of a small island economy, uses the trading information sets from overseas and the market itself to examine the impacts on the adjustment of daily spot exchange rates. The daily USD/TWD is explained by the trading information sets, contain which the daily trading activities and the ratio of the real body on the daily candlestick chart of technical analysis on the Taipei Foreign Exchange Market, as well as the US-dollar index return to explain the USD/TWD spot rate change. The results showed that some of the USD/TWD changes were related to the US-dollar index return on overseas, and that the effect of the US-dollar index return was not limited to the adjustment rate from the previous closing rate to the opening rate on the day, which would affect the adjustment spot exchange rate in the intraday opening-to-closing period. There is a significant positive relationship between the real body ratio of the daily candlestick chart and the return of the exchange rate, supporting the real body ratio related to the change of the exchange rate. The study model can greatly improve the model interpretation ability of the change of exchange rate by about 50% after considering the trading activity factors. Finally, this study found that the volatility has a positive effect on Mondays and the 2008-financial crisis, and based on the shock that the news of depreciation was higher than the news of appreciation, so there exist asymmetry volatility.

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“…Investors have shifted their funds from equity to other asset classes, including commodities. Historically, this strategy proved to be successful since commodities have proven to be a safe haven and exhibited resilience in times of economic crises (Aziz et al 2020 ; Baur and Lucey 2010 ).…”

Section: Introductionmentioning

confidence: 99%

Sugar Futures as an Investment Alternative During Market Turmoil: Case Study of 2008 and 2020 Market Drop

Babirath¹,

Schmitl²,

Sahatqija

et al. 2020

Sugar Tech

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In times of turbulent financial markets, investors all around the globe seek for opportunities protecting their portfolios from devastating losses. Historically, commodities were regarded as a safe haven providing sound returns which offset potential losses arising from dropping equity prices in times of market turmoil. While sugar would have provided a proper hedge against crashing equity markets during the initiation of the 2007 bear market and the onset financial crisis, sugar prices dropped likewise equity during the outbreak of COVID-19 and the consequent market shock. The goal of the paper is to elaborate on the differences in sugar price dynamics during the aforementioned economic disruptions by employing a multiple linear regression approach using data from the last quarter 2007 as well as the first quarter of 2019. The findings suggest that the behavioral differences stem from the deep link between oil and sugar prices. While oil did not influence the price of sugar during the outbreak of the financial crisis, it had tremendous influence on sugar prices during the outbreak of the corona crisis. Currently, sugar provides a substantial upside for an investor's portfolio since the demand and supply-side shock on oil prices due to corona crisis as well as the Saudi-Russian oil price war drove oil prices and consequently sugar prices to a historic low. Sugar futures provide the advantage of offering a smaller contract size compared to oil futures, and even though both commodities trade in contango as of March 2020, the sugar future curve is by far not as steep as the oils. Resultingly, investors benefit from lower rollover costs while prospering from a potential surge in oil prices.

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Volatility Spillover Among Equity and Commodity Markets

Cited by 27 publications

References 32 publications

Nexus between Southeast Asian stock markets, bitcoin and gold: spillover effect before and during the COVID-19 pandemic

Nexus between Southeast Asian stock markets, bitcoin and gold: spillover effect before and during the COVID-19 pandemic

The Impact of Trading Information Sets on Exchange Rate Change and Volatility: Evidence From Taiwan

Sugar Futures as an Investment Alternative During Market Turmoil: Case Study of 2008 and 2020 Market Drop

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