Dynamic connectedness and hedging opportunities of the commodity and stock markets in China: evidence from the TVP-VAR and cDCC-FIAPARCH

Binlin Li, Nils Haneklaus () and Mohammad Mafizur Rahman ()
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Binlin Li: Yunnan Agricultural University
Nils Haneklaus: Technische Universität Bergakademie Freiberg
Mohammad Mafizur Rahman: University of Southern Queensland

Financial Innovation, 2024, vol. 10, issue 1, 1-30

Abstract: Abstract This study examines the dynamic connectedness and hedging opportunities between CSI300 (China Security Index 300) and copper, gold, PTA (purified terephthalic acid), and soybean in China from January 09, 2008, to June 30, 2023. A TVP-VAR and cDCC-FIAPARCH modeling framework was used for the empirical investigation. The results show that the total connectedness index can effectively capture cross-asset information transmission in China’s financial markets. Copper returns are the dominant volatility transmitters, while CSI300, gold, and soybean returns are net recipients. The Russian–Ukraine war reinforced the safe-haven role of gold. Finally, investors with CSI300 long positions may benefit from prioritizing gold for hedging, while those with CSI300 short positions profit more from allocating gold to PTA. Portfolio managers and investors can use the findings to track the dynamics of systemic risk and adjust their long/short positions when investing in China's stock and commodity markets.

Keywords: TVP-VAR; connectedness, Spillover, Hedging effectiveness, Breitung–Candelon spectral Granger causality tests (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s40854-023-00607-x

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