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Commodity and Equity Markets: Volatility and Return Spillovers

Author

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  • Carlos Pinho

    (GOVCOPP—Unidade de Investigação em Governança, Competitividade e Políticas Públicas DEGEIT, Departamento de Economia, Gestão, Engenharia Industrial e Turismo, Universidade de Aveiro, 3810-193 Aveiro, Portugal)

  • Isabel Maldonado

    (GOVCOPP—Unidade de Investigação em Governança, Competitividade e Políticas Públicas DEGEIT, Departamento de Economia, Gestão, Engenharia Industrial e Turismo, Universidade de Aveiro, 3810-193 Aveiro, Portugal
    REMIT—Research on Economics, Management and Information Technologie, Universidade Portucalense, 4200-072 Porto, Portugal)

Abstract

The present paper provides an empirical analysis of the relationship between shocks to commodity markets and stock markets. By employing a total volatility connectedness measure, we study the relationship between shocks to oil, gold, copper, and agricultural commodity markets and emerging and developed stock markets. We conduct a connectivity analysis in the time and frequency domain to quantify market linkages using volatility spillovers over the period from 2004 to 2021. In addition, we analyze the spillovers of returns in these markets over the same period. The results suggest that both on volatility and returns spillovers, slightly more than 35% of the total variance of forecast errors is explained by shocks to markets during the period January 2004 to June 2021. We also show that, in terms of both volatility and returns, the contribution of equity market shocks to other markets is substantially more important than that of commodities; however, our analysis reveals that the total link between market returns is larger in the short run than in the long run, while in the case of volatility, the long-run frequencies concentrate the market link. Additionally, we use dynamic analysis to assess both the time evolution of total connectivity and all directional partial connectivity between markets. Our results show that both volatility and return linkages change significantly over time and that a set of events has a significant impact on them.

Suggested Citation

  • Carlos Pinho & Isabel Maldonado, 2022. "Commodity and Equity Markets: Volatility and Return Spillovers," Commodities, MDPI, vol. 1(1), pages 1-16, July.
    • Handle: RePEc:gam:jcommo:v:1:y:2022:i:1:p:3-33:d:866284
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    References listed on IDEAS

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    Cited by:

    1. Hang Zhang & Evangelos Giouvris, 2023. "What Is the Effect of Oil and Gas Markets (Spot/Futures) on Herding in BRICS? Recent Evidence (2007–2022)," JRFM, MDPI, vol. 16(11), pages 1-41, October.

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