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Moments-Based Spillovers across Gold and Oil Markets

Author

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  • Matteo Bonato

    () (Department of Economics and Econometrics, University of Johannesburg, Auckland Park, South Africa; IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France)

  • Rangan Gupta

    () (Department of Economics, University of Pretoria, Pretoria, 0002, South Africa; IPAG Business School, 184 Boulevard Saint-Germain, 75006 Paris, France)

  • Chi Keung Marco Lau

    () (Huddersfield Business School, University of Huddersfield, Huddersfield, HD1 3DH, United Kingdom)

  • Shixuan Wang

    () (Department of Economics, University of Reading, Reading, RG6 6AA, United Kingdom)

Abstract

In this paper, we use intraday futures market data on gold and oil to compute returns, realized volatility, volatility jumps, realized skewness and realized kurtosis. Using these daily metrics associated with two markets over the period of December 2, 1997 to May 26, 2017, we conduct linear, nonparametric, and time-varying (rolling) tests of causality, with the latter two approaches motivated due to the existence of nonlinearity and structural breaks. While, there is hardly any evidence of spillovers between the returns of these two markets, strong evidence of bidirectional causality is detected for realized volatility, which seems to be resulting from volatility jumps. Evidence of spillovers are also detected for the crash risk variables, i.e., realized skewness, and for realized kurtosis as well, with the effect on the latter being relatively stronger. Moreover, based on a moments-based test of causality, evidence of co-volatility is deduced, whereby we find that extreme positive and negative returns of gold and oil tend to drive the volatilities in these markets. Our results have important implications for not only investors, but also policymakers.

Suggested Citation

  • Matteo Bonato & Rangan Gupta & Chi Keung Marco Lau & Shixuan Wang, 2019. "Moments-Based Spillovers across Gold and Oil Markets," Working Papers 201966, University of Pretoria, Department of Economics.
  • Handle: RePEc:pre:wpaper:201966
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    Keywords

    Gold and Oil Markets; Linear; Nonparametric and Time-Varying Causality Tests; Moments-Based Spillovers;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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