Commodity and Equity Markets: Volatility and Return Spillovers

Carlos Pinho and Isabel Maldonado
Additional contact information
Carlos Pinho: GOVCOPP—Unidade de Investigação em Governança, Competitividade e Políticas Públicas DEGEIT, Departamento de Economia, Gestão, Engenharia Industrial e Turismo, Universidade de Aveiro, 3810-193 Aveiro, Portugal
Isabel Maldonado: GOVCOPP—Unidade de Investigação em Governança, Competitividade e Políticas Públicas DEGEIT, Departamento de Economia, Gestão, Engenharia Industrial e Turismo, Universidade de Aveiro, 3810-193 Aveiro, Portugal

Commodities, 2022, vol. 1, issue 1, 1-16

Abstract: The present paper provides an empirical analysis of the relationship between shocks to commodity markets and stock markets. By employing a total volatility connectedness measure, we study the relationship between shocks to oil, gold, copper, and agricultural commodity markets and emerging and developed stock markets. We conduct a connectivity analysis in the time and frequency domain to quantify market linkages using volatility spillovers over the period from 2004 to 2021. In addition, we analyze the spillovers of returns in these markets over the same period. The results suggest that both on volatility and returns spillovers, slightly more than 35% of the total variance of forecast errors is explained by shocks to markets during the period January 2004 to June 2021. We also show that, in terms of both volatility and returns, the contribution of equity market shocks to other markets is substantially more important than that of commodities; however, our analysis reveals that the total link between market returns is larger in the short run than in the long run, while in the case of volatility, the long-run frequencies concentrate the market link. Additionally, we use dynamic analysis to assess both the time evolution of total connectivity and all directional partial connectivity between markets. Our results show that both volatility and return linkages change significantly over time and that a set of events has a significant impact on them.

Keywords: spillover effect; volatility connectedness; variance decomposition; volatility (search for similar items in EconPapers)
JEL-codes: C0 C1 C2 C3 C4 C5 C6 C7 C8 C9 D4 E3 E6 F0 F1 F3 F4 F5 F6 G1 O1 O5 Q1 Q2 Q4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2813-2432/1/1/3/pdf (application/pdf)
https://www.mdpi.com/2813-2432/1/1/3/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jcommo:v:1:y:2022:i:1:p:3-33:d:866284

Access Statistics for this article

Commodities is currently edited by Ms. Wendy Yu

More articles in Commodities from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().