High inflation during Russia–Ukraine war and financial market interaction: Evidence from C-Vine Copula and SETAR models

Taher Hamza, Hayet Ben Haj Hamida (), Mehdi Mili and Mina Sami Ayad
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Taher Hamza: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Hayet Ben Haj Hamida: AMU - Aix Marseille Université, cedimes - CENTRE DES ETUDES ET DYNAMIQUES ECONOMIQUES ET SOCIALES - UPEC UP12 - Université Paris-Est Créteil Val-de-Marne - Paris 12
Mehdi Mili: University of Bahrain

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Abstract: This paper examines the interaction between three financial markets: energy and non-energy commodities, bonds and equities, in a particular context of high inflation worldwide, that of Russia–Ukraine war. Our data cover the period January 2016-October 2022. Using a SETAR-GARCH C-Vine Copula model, we provide evidence of two inflation breakouts within COVID pandemic and shortly before Russia–Ukraine war, for all assets considered, and particularly for US 10-Year bond, as an inflation-indexed asset. Over the Russia–Ukraine war period, both linear and nonlinear models explain the studied assets' behavior faced with high inflation. C-Vine Copula analysis shows that oil prices (WTI), as an inflation-producing assets, impact the volatility of financial markets (VIX) in times of war. This analysis indicates also that the NASDAQ index, as an inflation-exposed assets, is sensitive to commodities and energy prices that drive inflation. Furthermore, we find a high positive Kendall's tau for all combinations between US 10-Year and all other assets. These results provide strong evidence of the association between US 10-Year futures, as a vehicle of inflation, and all studied assets. Lastly, our findings confirm the evidence that Russia–Ukraine war generated two significant shocks, Gas (NG) prices and financial markets' volatility (VIX). This study is of crucial interest to policy and decision makers to the extent that it provides a framework for understanding, in a context of high inflation, the mechanisms linked to the vehicles for transmitting this inflation, its pricing process, and its impact on the equity market.

Keywords: Financial markets; Inflation; Market volatility; C-Vine Copula; Russia–Ukraine war (search for similar items in EconPapers)
Date: 2024-06
Note: View the original document on HAL open archive server: https://hal.science/hal-04678662v1
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Published in Research in International Business and Finance, 2024, 70, pp.102384. ⟨10.1016/j.ribaf.2024.102384⟩

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Journal Article: High inflation during Russia–Ukraine war and financial market interaction: Evidence from C-Vine Copula and SETAR models (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04678662

DOI: 10.1016/j.ribaf.2024.102384

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