Dynamic connectedness in non-ferrous commodity markets: Evidence from India using TVP-VAR and DCC-GARCH approaches

Aswini Kumar Mishra and Kshitish Ghate

Resources Policy, 2022, vol. 76, issue C

Abstract: This study seeks to conduct a comprehensive analysis of the return and volatility spillover dynamics between a network of base metals, in the Indian context, for the time period ranging from January 2011 to March 2020. This paper aims to study the dynamic connectedness between the metal markets by employing the time-varying parameter vector autoregressions (TVP-VAR) framework to analyze return spillovers and the dynamic conditional correlation–generalized autoregressive conditional heteroskedasticity (DCC-GARCH) approach to investigate the volatility spillovers. The results of the TVP-VAR approach show that Zinc, Lead and Nickel are the primary transmitters of disturbances that in turn affect the returns of other metals in the network. At the same time, Copper and Tin are the net receivers of return spillovers. The DCC-GARCH approach reveals that Tin, Aluminium and Zinc are continuous net transmitters of volatility shocks in the network, while Nickel and Lead are the net receivers. Overall, our analysis reveals a definite and substantial level of interconnectedness and implied market risk that exists within the base metal markets, both in terms of returns and volatility. This study therefore suggests a need to reduce the degree of portfolio diversification that involves base metals. These findings may be of particular relevance to policymakers and risk management professionals who seek to understand the risk associated with the base metal commodity markets in an emerging economy.

Keywords: TVP-VAR; DCC-GARCH; Spillover; Dynamic connectedness; Commodity; India (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (19)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:76:y:2022:i:c:s030142072200023x

DOI: 10.1016/j.resourpol.2022.102572

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