Are there inextricable connections among automobile stocks, crude oil, steel, and the US dollar?

Mehrad Asadi, Mehmet Balcilar, Umaid A. Sheikh, David Roubaud and Hamid Reza Ghasemi

Energy Economics, 2023, vol. 128, issue C

Abstract: According to the International Organization of Motor Vehicle Manufacturers (OICA), Automobile manufacturers use 40% of steel to make the body structure, 23% to make engines and gears, and 12% for suspensions. We untangled the perceived inextricable connections between crude oil, steel, the US dollar, and stocks of Toyota, Daimler, and Volkswagen as the automobile firms with the largest capitalization by using the time series daily data from 1998 to 2023. We used an augmented version of the Diebold and Yilmaz (2012) connectedness approach, which is based on the Time-Varying Parameter Vector Auto-regression (TVP-VAR) approach as introduced by Antonakakis et al. (2020). Findings suggested that Volkswagen, Daimler, and Toyota are more affected by shocks in steel prices than by USD and oil price shocks, with a spillover of 9%, 11.72%, and 8.72% respectively from steel. The next transmitter is USD, which contributes 4.94%, 6.37% and 3.96% of shocks to Volkswagen, Daimler, and Toyota stocks, and the third variable is the oil price shocks, which contributes 4.25%, 5.41% and 3.50% of spillover effects to Volkswagen, Daimler, and Toyota stocks, respectively. This shows the heterogeneous responses of automobile stocks with the highest capitalization and sales to the error variances transmitted from steel, USD as well as oil. Most notably, overall steel is a net transmitter and USD as net receiver in TYP-VAR system for Toyota and Daimler and can therefore be used as a diversifier. Our findings are impactful for the shareholders as well as portfolio managers for risk reduction and efficient portfolio management.

Keywords: Automobile stocks; Crude oil market; Steel market; US dollar exchange rate; TVP-VAR approach; Network connectedness approach; Cross market contagion (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:128:y:2023:i:c:s0140988323006746

DOI: 10.1016/j.eneco.2023.107176

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