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The US equity sectors, implied volatilities, and COVID-19: What does the spillover analysis reveal?

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  • Ahmad, Wasim
  • Hernandez, Jose Arreola
  • Saini, Seema
  • Mishra, Ritesh Kumar

Abstract

This study examines the spillover role of the implied volatilities of oil, gold, and the stock market with US equity sectors. Using time and frequency-based spillover methods, we find that the market’s expectation of oil price volatility (OVX) spillovers less strongly on the US sectoral returns than the market’s expectation of US stock market volatility (VIX), which exhibits the dominant spillover role. The market’s expectation of gold price volatility (GVZ) has a zero range spillover effect on the sectoral returns and is the most weakly affected by them, suggesting that gold can be used to hedge downside risk in all 10 US equity sectors considered. We also find that the US equity sectors’ spillovers on the VIX and OVX strengthen because of the coronavirus (COVID-19) outbreak.

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  • Ahmad, Wasim & Hernandez, Jose Arreola & Saini, Seema & Mishra, Ritesh Kumar, 2021. "The US equity sectors, implied volatilities, and COVID-19: What does the spillover analysis reveal?," Resources Policy, Elsevier, vol. 72(C).
  • Handle: RePEc:eee:jrpoli:v:72:y:2021:i:c:s0301420721001161
    DOI: 10.1016/j.resourpol.2021.102102
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    5. Thobekile Qabhobho & Anokye M. Adam & Anthony Adu-Asare Idun & Emmanuel Asafo-Adjei & Ebenezer Boateng, 2023. "Exploring the Time-varying Connectedness and Contagion Effects among Exchange Rates of BRICS, Energy Commodities, and Volatilities," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 272-283, March.
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    8. Ahmad, Wasim & Kutan, Ali M. & Chahal, Rishman Jot Kaur & Kattumuri, Ruth, 2021. "COVID-19 pandemic and firm-level dynamics in the USA, UK, Europe, and Japan," LSE Research Online Documents on Economics 112454, London School of Economics and Political Science, LSE Library.
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    More about this item

    Keywords

    Spillovers; US equity Sectors; Oil implied volatility; Gold implied volatility; COVID-19; Frequency connectedness;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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