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Do Volatilities Matter in the Interconnectedness between World Energy Commodities and Stock Markets of BRICS?

Author

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  • Gilbert K. Amoako
  • Emmanuel Asafo-Adjei
  • Kofi Mintah Oware
  • Anokye M. Adam
  • Stefan Cristian Gherghina

Abstract

Financial markets integration has resulted in high interconnectedness among the BRICS stock markets, which minimizes diversification potentials. This has increased investors’ interest in the financialization of commodities to minimize their portfolio risks. However, the comovements between these assets do not operate in a vacuum, which requires that the role of volatilities be considered in tandem. The purpose of this study is to explore the interdependencies between energy commodities and stock markets of BRICS in the midst of relevant volatilities. For this reason, the wavelet techniques, biwavelet and partial wavelet, are employed. We find that positive comovements between energy commodities and stock markets of BRICS become stronger in the long-term. Furthermore, volatility has a long-term impact on the correlations between energy commodities and the BRICS stock market. We argue that the US Volatility Index, which measures investor anxiety and volatility in stock markets, has the biggest impact on the relationship between energy commodities and BRICS stock markets. Surprisingly, the correlations between energy commodities and Russian stock markets were strong enough to withstand the effects of volatilities. Hence, investors can use volatilities to hedge portfolio risks in energy commodities and stock markets in Brazil, India, China, and South Africa.

Suggested Citation

  • Gilbert K. Amoako & Emmanuel Asafo-Adjei & Kofi Mintah Oware & Anokye M. Adam & Stefan Cristian Gherghina, 2022. "Do Volatilities Matter in the Interconnectedness between World Energy Commodities and Stock Markets of BRICS?," Discrete Dynamics in Nature and Society, Hindawi, vol. 2022, pages 1-13, April.
    • Handle: RePEc:hin:jnddns:1030567
    DOI: 10.1155/2022/1030567
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    Citations

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    Cited by:

    1. Thobekile Qabhobho & Emmanuel Asafo-Adjei & Peterson Owusu Junior & Anokye M. Adam, 2022. "Quantifying information transfer between Commodities and Implied Volatilities in the Energy Markets: A Multi-frequency Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 12(5), pages 472-481, September.
    2. Thobekile Qabhobho, 2023. "Assessing the Asymmetric Effect of Local Realized Exchange Rate Volatility and Implied Volatilities in Energy Market on Exchange Rate Returns in BRICS," International Journal of Energy Economics and Policy, Econjournals, vol. 13(2), pages 231-239, March.
    3. Qi, Haozhi & Ma, Lijun & Peng, Pin & Chen, Hao & Li, Kang, 2022. "Dynamic connectedness between clean energy stock markets and energy commodity markets during times of COVID-19: Empirical evidence from China," Resources Policy, Elsevier, vol. 79(C).
    4. 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.
    5. Kakade, Kshitij & Jain, Ishan & Mishra, Aswini Kumar, 2022. "Value-at-Risk forecasting: A hybrid ensemble learning GARCH-LSTM based approach," Resources Policy, Elsevier, vol. 78(C).

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