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Asymmetric, time and frequency-based spillover transmission in financial and commodity markets

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  • Shah, Adil Ahmad
  • Dar, Arif Billah

Abstract

The study examines asymmetric, time and frequency-based spillover transmission in financial and commodity markets by employing the VAR-based generalized forecast error variance decomposition framework. Daily prices of S&P-500 and the US Dollar- Euro exchange rate representing the financial markets and WTI, gold, silver, copper, corn and soybean representing the commodity markets for the period ranging from January 6, 2006 to February 25, 2021 are used. The empirical results show that aggregate spillover transmission in financial and commodity markets exhibit asymmetry as downside spillovers dominate upside spillovers. The time-varying spillover asymmetry plot shows that there is a domination of downside spillovers only during crisis events, such as the Global Financial Crisis, the European Debt Crisis and the Covid-19 pandemic. The cross-spillover measures reveal that the inclusion of distinct asset classes, such as corn and soybean with S&P-500 has the potential to reduce the risk associated with the portfolio due to lower cross-spillovers between them. The time and frequency-based spillover transmission results indicate that overall spillovers in financial and commodity markets increase during uncertain market conditions and are mostly driven by shorter horizons. The findings are helpful to various financial market participants and the regulatory authorities.

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  • Shah, Adil Ahmad & Dar, Arif Billah, 2022. "Asymmetric, time and frequency-based spillover transmission in financial and commodity markets," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).
    • Handle: RePEc:eee:joecas:v:25:y:2022:i:c:s1703494922000020
    DOI: 10.1016/j.jeca.2022.e00241
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    More about this item

    Keywords

    Asymmetric spillover transmission; Time and frequency spillovers; Financial markets; Commodity markets; Covid-19; GFC;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General

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