Return and Volatility Transmissions between Metals and Stocks: A Study of the Emerging Asian Markets by Using the VAR-AGARCH Approach

Imran Yousaf, Shoaib Ali and Wing-Keung Wong
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Wing-Keung Wong: Department of Finance, Fintech Center, and Big Data Research Center, Asia University, Taiwan, ROC3Department of Medical Research, China Medical University Hospital, Taiwan, ROC4Department of Economics and Finance, The Hang Seng University of Hong Kong, Hong Kong

Asia-Pacific Journal of Operational Research (APJOR), 2022, vol. 39, issue 04, 1-25

Abstract: This study examines the return and volatility transmission/spillover between (Precious and Industrial) metals and stocks in the emerging Asian markets in the entire studying period and the two crisis sub-periods: the global financial crisis (GFC) and the Chinese Stock market crash sub-periods, and the normal sub-period that does not have any crisis. In addition, we estimate the optimal weights and hedge ratios for both metals and stocks. Employing the VAR-AGARCH model to estimate spillover, the results reveal the unidirectional return spillover from both precious and industrial metals to most of the Asian equity markets in the entire period as well as in the GFC and normal sub-periods but not the sub-period of the Chinese stock market crash. Besides, we reveal that there are unidirectional or bidirectional volatility transmissions between most of the precious metals and the Asian stock markets during the entire period and all the sub-periods. In contrast, the volatility spillover is not significant between most of the industrial metals and Asian stock markets during the entire period and all the sub-periods. On the other hand, our analysis on both optimal weight and hedge ratios suggests that adding nearly any metal to a portfolio of emerging Asian stocks improves its risk-adjusted return and helps to effectively hedge against stock risk exposure over both crisis and non-crisis sub-periods. Overall, these findings provide useful insights for portfolio diversification, asset pricing, and risk management.

Keywords: Precious and industrial metals; stock markets; global financial crisis; Chinese stock market crash; VAR-AGARCH (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1142/S0217595920400205

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