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Extreme connectedness and network across financial assets and commodity futures markets

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  • Ozcelebi, Oguzhan
  • Kang, Sang Hoon

Abstract

This study investigates the extreme connectedness across S&P 500 and commodity futures markets in various market conditions (bearish, normal, and bullish) using the TVP-VAR model and quantile VAR (QVAR) connectedness approach. Our empirical results provide important implications. First, the dynamic results of TVP-VAR model show an asymmetric and crisis-sensitive connectivity with the S&P 500 stock market acting as the net transmitter of spillovers in the system. The S&P 500 index contributed significantly to the system during the COVID-19 pandemic process. Second, according to the results of QVAR method, the total connectedness index is more pronounced during bearish and bullish market, demonstrating the higher return spillovers during lower and higher quantile. Third, we analyze strong connectedness between the S&P 500 stock and commodity markets in upper and lower quantiles, evidenced bysignificantly high interdependence during extreme markets, resulting in limited opportunities for portfolio diversification. Finally, the results of hedging ratio show that VIX is the most efficient hedging asset against the risk of S&P 500 stock market. Our findings provide valuable information to investors and policymakers regarding portfolio diversification and risk management during various market conditions.

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  • Ozcelebi, Oguzhan & Kang, Sang Hoon, 2024. "Extreme connectedness and network across financial assets and commodity futures markets," The North American Journal of Economics and Finance, Elsevier, vol. 71(C).
  • Handle: RePEc:eee:ecofin:v:71:y:2024:i:c:s106294082400024x
    DOI: 10.1016/j.najef.2024.102099
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    Cited by:

    1. Marina Yu. Malkina, 2024. "Financial Contagion of the Commodity Markets from the Stock Market during Pandemic and New Sanctions Shocks," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 23(2), pages 452-475.

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    More about this item

    Keywords

    Commodity futures; TVP-VAR model; Quantile VAR model; Extreme connectedness; Connectedness network; Hedging;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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