The nexus between mineral, renewable commodities, and regional stock sectors during health and military crises

We examine the return and volatility spillover dynamics and their portfolio implications among regional stock super-sectors, mineral (Energy, Industrial, and Precious Metals), and renewable (Agricultural and Livestock) commodities. To this end, we apply the time-varying parameter-vector autoregressive (TVP-VAR) model to analyze the intersectoral-commodity linkages separately in four major regions (Europe, Eastern Europe, Asia Pacific, and North America). The empirical results show that stock market sectors dominate the spillover transmission mechanism, while commodities emerge as net recipients of shocks. Moreover, we find heterogeneous connectedness patterns between stock sectors and commodities, predominantly running from the Energy and Basic Resources stocks to the Energy and Industrial Metals commodities. Thus, energy commodities play a more vital role as a spreader of volatility shocks amid the COVID-19 pandemic and the wake of the Russia-Ukraine war. The optimal portfolio weights reflect two episodes of “flight to safety” towards all commodities except Energy, triggered by the pandemic and the war, as investors decrease their fund allocation to stocks in favor of commodities.