Connectedness between gold, copper, fossil fuels, and major stock markets: Implications for portfolio management

Farzaneh Ahmadian-Yazdi, Walid Mensi, Khamis Hamed Al-Yahyaee, Manijeh Ramsheh and Sami Al-Kharusi

Resources Policy, 2025, vol. 109, issue C

Abstract: This study explores the dynamic connectedness between commodity futures (copper, Brent oil, natural gas, and gold) and pivotal stock markets in Japan, France, Canada, Germany, the U.S., China, and Italy using the time-varying parameter vector-autoregressive (TVP-VAR) model of Antonakakis et al. (2020). Moreover, we analyze portfolio design using multivariate optimal weights by relying on the Minimum Variance Portfolio (MVP), Minimum Correlation Portfolio (MCP), and Minimum Connectedness Portfolio (MCoP) approaches, as well as bivariate optimal weights and hedge ratios using the Broadstock et al. (2022) method. The results show that the French and German stock market returns are the main shock drivers in the network. However, natural gas is the least contributor of shocks to the network and can be used as a hedge asset. Furthermore, all commodity markets are net shock receivers in the system. The spillovers between commodity and stock markets experience a jump during extreme event periods. However, the results reveal that investors should hold more gold than other commodities to equity portfolios, irrespective of market status, under the MVP and MCP approaches. Moreover, we show that the cheapest strategies with significant hedging effectiveness (HE) values are the Shanghai Stock Exchange (CN)/Brent oil in normal mode, Germany and the Shanghai Stock Exchange/Brent oil in bearish mode, and gold/Italy and Brent oil in bullish mode. Conversely, the most expensive strategies are Brent oil/Canada in the normal mode, Italy and Germany/France in the bearish mode, and gold/Italy and Brent oil in the bullish mode.

Keywords: Stock market; Commodity; Portfolio management; Connectedness; Bearish and bullish scenarios (search for similar items in EconPapers)
JEL-codes: G14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:109:y:2025:i:c:s0301420725002703

DOI: 10.1016/j.resourpol.2025.105728

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