How do return and volatility spillovers shape futures markets? Insights from index, commodity, and carbon emission futures

This study examines return and volatility spillovers among global futures markets using a dataset of 3523 daily observations spanning 2008 to 2024. The analysis includes 20 futures markets, comprising commodity futures, equity index futures, carbon emissions futures, and the CBOE Volatility Index (VIX). Employing a combination of Time-Varying Parameter Vector Autoregressive (TVP-VAR), Quantile Vector Autoregression (QVAR), Dynamic Conditional Correlation-Generalized Autoregressive Conditional Heteroskedasticity (DCC-GARCH), and wavelet coherence models, this study captures the dynamic, frequency-specific, and quantile-specific nature of market interconnectedness. The findings reveal significant return spillovers, with equity indices such as the S&P 500 and Dow Jones acting as critical transmitters of shocks. Increased interconnectedness is observed during periods of market distress, such as the 2008 financial crisis and the COVID-19 pandemic, highlighting the influence of macroeconomic and geopolitical events. Commodity futures, particularly crude oil and gold, demonstrate substantial spillover effects, driven by shared market fundamentals. Volatility analysis identifies the VIX and crude oil futures as central to volatility transmissions, with wavelet coherence further illustrating the alignment of spillovers with economic cycles and asset-specific drivers. Carbon emissions futures exhibit high self-connectedness, underscoring their sensitivity to internal market factors. By integrating multiple econometric approaches and linking spillovers to underlying economic drivers, this study contributes to the literature on financial market dynamics.