Asymmetric, time and frequency-based spillover transmission in financial and commodity markets

Adil Ahmad Shah and Arif Dar

The Journal of Economic Asymmetries, 2022, vol. 25, issue C

Abstract: The study examines asymmetric, time and frequency-based spillover transmission in financial and commodity markets by employing the VAR-based generalized forecast error variance decomposition framework. Daily prices of S&P-500 and the US Dollar- Euro exchange rate representing the financial markets and WTI, gold, silver, copper, corn and soybean representing the commodity markets for the period ranging from January 6, 2006 to February 25, 2021 are used. The empirical results show that aggregate spillover transmission in financial and commodity markets exhibit asymmetry as downside spillovers dominate upside spillovers. The time-varying spillover asymmetry plot shows that there is a domination of downside spillovers only during crisis events, such as the Global Financial Crisis, the European Debt Crisis and the Covid-19 pandemic. The cross-spillover measures reveal that the inclusion of distinct asset classes, such as corn and soybean with S&P-500 has the potential to reduce the risk associated with the portfolio due to lower cross-spillovers between them. The time and frequency-based spillover transmission results indicate that overall spillovers in financial and commodity markets increase during uncertain market conditions and are mostly driven by shorter horizons. The findings are helpful to various financial market participants and the regulatory authorities.

Keywords: Asymmetric spillover transmission; Time and frequency spillovers; Financial markets; Commodity markets; Covid-19; GFC (search for similar items in EconPapers)
JEL-codes: C30 C58 F31 G11 G15 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:25:y:2022:i:c:s1703494922000020

DOI: 10.1016/j.jeca.2022.e00241

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