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Can infectious disease pandemic impact the long-term volatility and correlation of gold and crude oil markets?

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  • Wei, Yu
  • Wang, Zhuo
  • Li, Dongxin
  • Chen, Xiaodan

Abstract

Infectious disease pandemic has been proved to have deep effects on financial and commodity markets. Gold and crude oil as two commonly used commodities to diversify a wide variety of uncertainties are both very susceptible to public health emergencies. The aim of this paper is to quantify the impacts of infectious disease pandemic on the long-term volatility and correlation of gold and crude oil markets by using the DCC-MIDAS approach. The empirical results show that infectious disease pandemic does has prominent positive impacts on the long-run volatilities of both gold and crude oil markets, and these impacts are strengthened with the time lags of infectious disease pandemic. Furthermore, crude oil market is more vulnerable to public health emergencies than gold market. Finally, infectious disease pandemic also has significantly positive effects on the long-term correlation between gold and crude oil markets. These findings have profound implications for gold and crude oil traders in terms of risk management and portfolio allocation.

Suggested Citation

  • Wei, Yu & Wang, Zhuo & Li, Dongxin & Chen, Xiaodan, 2022. "Can infectious disease pandemic impact the long-term volatility and correlation of gold and crude oil markets?," Finance Research Letters, Elsevier, vol. 47(PA).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pa:s154461232100581x
    DOI: 10.1016/j.frl.2021.102648
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