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Volatility Transmission and Market Connectivity of Metals and Energy Commodities: Insights from the Spillover Index

Author

Listed:
  • Mathias Tessmann

    (Brazilian Institute of Education, Development and Research – IDP, Brazil)

  • Carlos Carrasco-Gutierrez

    (Catholic University of Brasília, Brazil)

  • Omar Khodr

    (University of Essex, United Kingdom)

  • Luiz Augusto Magalhães

    (Brazilian Institute of Education, Development and Research - IDP, Brazil)

  • Marcelo Passos

    (Federal University of Pelotas, Brazil)

Abstract

This paper explores the interconnections between metal and energy commodities by assessing the transmission of volatility within their futures markets. Achieved through the spillover index, the analysis reveals the impact of shocks on asset pairs—highlighting which assets absorb and transmit volatility, thereby explaining market connectivity. The dataset covers a period of twenty years of daily closing prices from the London Metals Exchange for a range of commodities. The Diebold and Yilmaz (2012) index, enriched by Baruník and Krehlík (2018) was used to reflect the changes in trends. The results obtained provide insights into market connectivity and the propagation of volatility during periods of economic distress. In this context, following the 2008 crisis, precious metals exhibited significant interconnectivity, with the emergence of Silver's vulnerability along with Gold's volatility tied to pre-crisis returns. Furthermore, copper's volatility reflects conditional correlations with market stock prices and other commodities particularly during economic downturns.

Suggested Citation

  • Mathias Tessmann & Carlos Carrasco-Gutierrez & Omar Khodr & Luiz Augusto Magalhães & Marcelo Passos, 2024. "Volatility Transmission and Market Connectivity of Metals and Energy Commodities: Insights from the Spillover Index," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 609-618, May.
    • Handle: RePEc:eco:journ2:2024-03-62
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    References listed on IDEAS

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    Cited by:

    1. Richard Wamalwa Wanzala & Lawrence Ogechukwu Obokoh, 2024. "Sustainability Implications of Commodity Price Shocks and Commodity Dependence in Selected Sub-Saharan Countries," Sustainability, MDPI, vol. 16(20), pages 1-26, October.

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    More about this item

    Keywords

    Volatility Transmission; Spillover Index; Metal and Energy Commodities; London Metals Exchange;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q37 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Issues in International Trade
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices

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