IDEAS home Printed from https://ideas.repec.org/a/bas/econst/y2022i4p18-32.html
   My bibliography  Save this article

Volatility Spillover Effects among Gold, Oil and Stock Markets: Empirical Evidence from the G7 Countries

Author

Listed:
  • S. Kannadas
  • T. Viswanathan

Abstract

Economic cooperation of countries across the world has led to the integration of stock and commodities markets. The group of seven countries (G7) represents the world’s most industrialised and developed economies. In an integrated market, understanding the price discovery mechanism and volatility spillover across markets is crucial for traders, investors and other stakeholders. This paper investigates the return dynamics and volatility Spillover among the stock markets of G7 countries, oil and gold. We apply VAR and GARCH to examine the relationship between the returns and the transmission of volatility between commodities and stock markets. The research is based on the major stock indices of G7 countries for the years between 2009 and 2018. Oil and gold are taken as a proxy for the commodities market. This study begins by examining the cointegration of the stock and commodities market using the Johansen cointegration test. Stochastic volatility models are used to estimate the volatility and its spillover effect. We estimate the volatility spillover index using variance decomposition. The results indicate the presence of an asymmetric volatility spillover effect between the stock and commodities market. The outcome of the study would facilitate the investors and portfolio managers to understand the return dynamics and volatility spillover effect, which is a prerequisite for an investment decision.

Suggested Citation

  • S. Kannadas & T. Viswanathan, 2022. "Volatility Spillover Effects among Gold, Oil and Stock Markets: Empirical Evidence from the G7 Countries," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 18-32.
    • Handle: RePEc:bas:econst:y:2022:i:4:p:18-32
    as

    Download full text from publisher

    File URL: https://www.iki.bas.bg/Journals/EconomicStudies/2022/2022-4/02_Kannadas.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Helena Chuliá & Hipòlit Torró, 2008. "The economic value of volatility transmission between the stock and bond markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 28(11), pages 1066-1094, November.
    2. Jain, Anshul & Biswal, P.C., 2016. "Dynamic linkages among oil price, gold price, exchange rate, and stock market in India," Resources Policy, Elsevier, vol. 49(C), pages 179-185.
    3. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    4. Sebnem Kalemli-Ozcan & Bent Sorensen & Vadym Volosovych, 2014. "Deep Financial Integration And Volatility," Journal of the European Economic Association, European Economic Association, vol. 12(6), pages 1558-1585, December.
    5. Ashfaq, Saleha & Tang, Yong & Maqbool, Rashid, 2019. "Volatility spillover impact of world oil prices on leading Asian energy exporting and importing economies’ stock returns," Energy, Elsevier, vol. 188(C).
    6. Ågren, Martin, 2006. "Does Oil Price Uncertainty Transmit to Stock Markets?," Working Paper Series 2006:23, Uppsala University, Department of Economics.
    7. Chang, Hsiao-Fen & Huang, Liang-Chou & Chin, Ming-Chin, 2013. "Interactive relationships between crude oil prices, gold prices, and the NT–US dollar exchange rate—A Taiwan study," Energy Policy, Elsevier, vol. 63(C), pages 441-448.
    8. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
    9. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    10. repec:icf:icfjaf:v:19:y:2013:i:1:p:99-109 is not listed on IDEAS
    11. Gülin Vardar & Yener Coşkun & Tezer Yelkenci, 2018. "Shock transmission and volatility spillover in stock and commodity markets: evidence from advanced and emerging markets," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 231-288, August.
    12. Fengming Qin & Junru Zhang & Zhaoyong Zhang, 2018. "RMB Exchange Rates and Volatility Spillover across Financial Markets in China and Japan," Risks, MDPI, vol. 6(4), pages 1-26, October.
    13. Zhang, Yue-Jun & Wei, Yi-Ming, 2010. "The crude oil market and the gold market: Evidence for cointegration, causality and price discovery," Resources Policy, Elsevier, vol. 35(3), pages 168-177, September.
    14. Khalil Jebran & Amjad Iqbal, 2016. "Dynamics of volatility spillover between stock market and foreign exchange market: evidence from Asian Countries," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 2(1), pages 1-20, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Akkoc, Ugur & Civcir, Irfan, 2019. "Dynamic linkages between strategic commodities and stock market in Turkey: Evidence from SVAR-DCC-GARCH model," Resources Policy, Elsevier, vol. 62(C), pages 231-239.
    2. Fowowe, Babajide & Shuaibu, Mohammed, 2016. "Dynamic spillovers between Nigerian, South African and international equity markets," International Economics, Elsevier, vol. 148(C), pages 59-80.
    3. Rajni Kant Rajhans & Anuradha Jain, 2015. "Volatility Spillover in Foreign Exchange Markets," Paradigm, , vol. 19(2), pages 137-151, December.
    4. Afees A. Salisu & Kazeem Isah, 2017. "Modeling the spillovers between stock market and money market in Nigeria," Working Papers 023, Centre for Econometric and Allied Research, University of Ibadan.
    5. Umar, Zaghum & Nasreen, Samia & Solarin, Sakiru Adebola & Tiwari, Aviral Kumar, 2019. "Exploring the time and frequency domain connectedness of oil prices and metal prices," Resources Policy, Elsevier, vol. 64(C).
    6. Das, Suman & Roy, Saikat Sinha, 2023. "Following the leaders? A study of co-movement and volatility spillover in BRICS currencies," Economic Systems, Elsevier, vol. 47(2).
    7. Adekoya, Oluwasegun B. & Oliyide, Johnson A., 2021. "How COVID-19 drives connectedness among commodity and financial markets: Evidence from TVP-VAR and causality-in-quantiles techniques," Resources Policy, Elsevier, vol. 70(C).
    8. Wen, Danyan & Wang, Yudong, 2021. "Volatility linkages between stock and commodity markets revisited: Industry perspective and portfolio implications," Resources Policy, Elsevier, vol. 74(C).
    9. Roy, Rudra Prosad & Sinha Roy, Saikat, 2017. "Financial contagion and volatility spillover: An exploration into Indian commodity derivative market," Economic Modelling, Elsevier, vol. 67(C), pages 368-380.
    10. İrfan Civcir & Uğur Akkoç, 2021. "Dynamic volatility linkages and hedging between commodities and sectoral stock returns in Turkey: Evidence from SVAR‐cDCC‐GARCH model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1978-1992, April.
    11. Awartani, Basel & Aktham, Maghyereh & Cherif, Guermat, 2016. "The connectedness between crude oil and financial markets: Evidence from implied volatility indices," Journal of Commodity Markets, Elsevier, vol. 4(1), pages 56-69.
    12. Mokni, Khaled & Hammoudeh, Shawkat & Ajmi, Ahdi Noomen & Youssef, Manel, 2020. "Does economic policy uncertainty drive the dynamic connectedness between oil price shocks and gold price?," Resources Policy, Elsevier, vol. 69(C).
    13. Juncal Cunado & David Gabauer & Rangan Gupta, 2024. "Realized volatility spillovers between energy and metal markets: a time-varying connectedness approach," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-17, December.
    14. Akhtaruzzaman, Md & Boubaker, Sabri & Sensoy, Ahmet, 2021. "Financial contagion during COVID–19 crisis," Finance Research Letters, Elsevier, vol. 38(C).
    15. Costola, Michele & Lorusso, Marco, 2022. "Spillovers among energy commodities and the Russian stock market," Journal of Commodity Markets, Elsevier, vol. 28(C).
    16. Evrim Mandacı, Pınar & Cagli, Efe Çaglar & Taşkın, Dilvin, 2020. "Dynamic connectedness and portfolio strategies: Energy and metal markets," Resources Policy, Elsevier, vol. 68(C).
    17. Muneer Shaik & Mohd Ziaur Rehman, 2023. "The Dynamic Volatility Connectedness of Major Environmental, Social, and Governance (ESG) Stock Indices: Evidence Based on DCC-GARCH Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(1), pages 231-246, March.
    18. Antonakakis, Nikolaos & Cunado, Juncal & Filis, George & Gabauer, David & Perez de Gracia, Fernando, 2018. "Oil volatility, oil and gas firms and portfolio diversification," Energy Economics, Elsevier, vol. 70(C), pages 499-515.
    19. Vincenzo Candila & Salvatore Farace, 2018. "On the Volatility Spillover between Agricultural Commodities and Latin American Stock Markets," Risks, MDPI, vol. 6(4), pages 1-16, October.
    20. Kang, Sanghoon & Hernandez, Jose Arreola & Sadorsky, Perry & McIver, Ronald, 2021. "Frequency spillovers, connectedness, and the hedging effectiveness of oil and gold for US sector ETFs," Energy Economics, Elsevier, vol. 99(C).

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bas:econst:y:2022:i:4:p:18-32. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Diana Dimitrova (email available below). General contact details of provider: https://edirc.repec.org/data/ikbasbg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.