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How do financial and commodity markets volatility react to real economic activity?

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  • Urom, Christian
  • Ndubuisi, Gideon
  • Guesmi, Khaled

Abstract

This paper examines the relationship between real economic activity and the financial and commodity markets using two approaches. First, we use the Discrete Wavelet Method to investigate the lead-lag dependence between real economic activity and these markets. Second, we use the Time-Varying Parameter VAR (TVP-VAR) model with stochastic volatility to examine the short- and long-term level of integration among these variables. Our wavelet results show that although the real economic activity shock lead co-movement with the chosen markets, it was led by these markets during periods of economic downturn as evidenced during the COVID-19 pandemic. Regarding the TVP-VAR results, we find that the connectedness between economic activity and the chosen markets is stronger during economic downturns or in the long run.

Suggested Citation

  • Urom, Christian & Ndubuisi, Gideon & Guesmi, Khaled, 2022. "How do financial and commodity markets volatility react to real economic activity?," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322000563
    DOI: 10.1016/j.frl.2022.102733
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    Cited by:

    1. Gozgor, Giray & Khalfaoui, Rabeh & Yarovaya, Larisa, 2023. "Global supply chain pressure and commodity markets: Evidence from multiple wavelet and quantile connectedness analyses," Finance Research Letters, Elsevier, vol. 54(C).
    2. Ndubuisi, Gideon & Urom, Christian, 2023. "Dependence and risk spillovers among clean cryptocurrencies prices and media environmental attention," Research in International Business and Finance, Elsevier, vol. 65(C).
    3. Yang, Lu & Cui, Xue & Yang, Lei & Hamori, Shigeyuki & Cai, Xiaojing, 2023. "Risk spillover from international financial markets and China's macro-economy: A MIDAS-CoVaR-QR model," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 55-69.

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    More about this item

    Keywords

    Economic activity; Energy market; Stock market; Precious Metals; Asymmetric shocks Spillover; Wavelets; time-frequency domain;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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