Financial crises and dynamic spillovers among Chinese stock and commodity futures markets

Sang Hoon Kang and Seong-Min Yoon

Physica A: Statistical Mechanics and its Applications, 2019, vol. 531, issue C

Abstract: This study examines the dynamics of return and volatility spillover across Chinese stock and four commodity futures, namely, CSI 300 index, aluminium, copper, fuel oil, and natural rubber, by employing both the multivariate DECO-GARCH model and the spillover index model. In particular, we investigate the dynamics of return and volatility spillover indices that reveal the intensity and direction of transmission during the recent financial crises, that is, the 2008–2009 global financial crisis and the 2010–2012 European debt crisis. From our empirical results, we find a positive equicorrelation level which sharply bursts during the recent financial crises. This effect can be particularly persistent during periods of turmoil, which diminishes the benefits of international portfolio diversification for investors. We also find the bi-directional return and volatility spillover indexes across Chinese stock and commodity future markets. These trends are more pronounced in the aftermath of the recent financial crises, indicating the strength of spillovers during periods of turmoil. Finally, we show evidence asserting that stock nexus commodity futures portfolio offers better but different diversification benefits and hedging effectiveness for the Chinese stock market. Overall, our findings shed new light for understanding the channels of information transmission, which can be useful in determining superior investment decisions and creating trading strategies for portfolio investors.

Keywords: Dynamic spillovers; Financial crisis; Spillover index; Multivariate DECO-GARCH model; Commodity futures (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (37)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:531:y:2019:i:c:s0378437119310416

DOI: 10.1016/j.physa.2019.121776

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