Economic policy uncertainty and the volatility connectedness between oil shocks and metal market: An extension

Johnson Oliyide, Oluwasegun Adekoya () and Muhammad A. Khan

International Economics, 2021, vol. 167, issue C, 136-150

Abstract: While the literature is obviously flooded with studies on the nexus between oil and metal market, the volatility connectedness dynamics that measures the forward and backward spillover linkage between different classes of oil price shocks and the metal market remains understudied. Thus, little is known about the feedback risk transmissions between individual components of oil shocks and globally traded metals. Extending the recent work of Mokni et al. (2020) which partly addresses this concern, we find strong connectedness between the four different types of oil shocks considered and five precious and industrial metals. Besides, all the oil shocks serve as net pairwise receivers of volatility spillovers, showcasing the increased financialization of oil, but its inability to hedge investors in all the metals. In entirety, gold is a net shock receiver in the system, indicating its inappropriateness to provide diversification benefits for other assets. Another important discovery is that the strong connectedness is found to be driven by economic policy uncertainty both for causality-in-conditional mean and causality-in-conditional variance. Appropriate policy suggestions are drawn accordingly.

Keywords: Oil price shocks; Metals; Volatility spillovers; Economic policy uncertainty (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Journal Article: Economic policy uncertainty and the volatility connectedness between oil shocks and metal market: An extension (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inteco:v:167:y:2021:i:c:p:136-150

DOI: 10.1016/j.inteco.2021.06.007

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