Risk connectedness between crude oil, gold and exchange rates in China: Implications of the COVID-19 pandemic

Lei Xu, Xueke Ma, Fang Qu and Li Wang

Resources Policy, 2023, vol. 83, issue C

Abstract: This study examined the risk connectedness and its asymmetry between oil, gold, and foreign exchange under the realized volatility, spillover index framework, and high-frequency data during the COVID-19 pandemic. It was found that: (1) At the beginning of the pandemic outbreak, the total volatility spillover in the system declined, which may indicate that the pandemic cuts the trading activities in the financial markets by inhibiting personnel mobility, then, the spillover experienced a short-term sharp rise due to panic. (2) The exchange rate had a significant risk connectedness with gold and international crude oil, but a restrict connectedness with domestic crude oil after the outbreak. These variations of risk transmission caused by the pandemic emerged later than the outbreak, reflecting a certain lag. (3) The impact of the pandemic on the asymmetric risk connectedness between oil, gold and the exchange rate was limited, and the risk transfer resulting from bad news was dominant during the sample period; however, gold was less affected by bad news than the oil and exchange rates. These findings suggested that the establishment of Chinese crude oil futures could restrain volatility spillovers from the exchange rate; the foreign exchange reserve structure should be optimized. Gold has been proved to have a hedging function with the crude oil, and its proportion in foreign exchange reserves should be appropriately increased.

Keywords: Risk connectedness; High frequency data; COVID-19; Foreign exchange reserve; Natural resource assets (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0301420723004026
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:83:y:2023:i:c:s0301420723004026

DOI: 10.1016/j.resourpol.2023.103691

Access Statistics for this article

Resources Policy is currently edited by R. G. Eggert

More articles in Resources Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().