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How fearful are commodities and US stocks in response to global fear? Persistence and cointegration analyses

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  • Yaya, OlaOluwa S.
  • Gil-Alana, Luis A.
  • Adekoya, Oluwasegun B.
  • Vo, Xuan Vinh

Abstract

This paper deals with the analysis of long-run relationships of fear indices for US stocks, commodities, and the energy sector with global fear indices for stocks and oil. Departing from the classical literature, fractional integration, and cointegration techniques are used to determine the degree of persistence in the long-run relationship of the indices. Our results are threefold. We first established a fractional cointegrating relationship between each of the global and oil fear indices and other fear indices. However, the long-run relationship tends to be weak for the technology stocks. In addition, the cointegrating framework reveals a nonstationary mean-reverting behaviour in the long-run relationship, implying that the effect of shocks from financial, economic, or other exogenous sources will be temporary though with long-lasting effects. These findings have crucial policy inferences for portfolio managers concerning investment decisions.

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  • Yaya, OlaOluwa S. & Gil-Alana, Luis A. & Adekoya, Oluwasegun B. & Vo, Xuan Vinh, 2021. "How fearful are commodities and US stocks in response to global fear? Persistence and cointegration analyses," Resources Policy, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:jrpoli:v:74:y:2021:i:c:s0301420721002841
    DOI: 10.1016/j.resourpol.2021.102273
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    2. Adekoya, Oluwasegun B. & Oliyide, Johnson A., 2022. "Commodity and financial markets’ fear before and during COVID-19 pandemic: Persistence and causality analyses," Resources Policy, Elsevier, vol. 76(C).
    3. Ibrahim FAROUQ & Zunaidah SULONG, 2023. "The Effect of Climate Policy Shocks and Global Financial Shocks on Oil Price Shocks: Evidence from South Africa," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 72-90, December.
    4. Yener, Coskun & Akinsomi, Omokolade & Gil-Alana, Luis A. & Yaya, OlaOluwa S, 2023. "Stock Market Responses to COVID-19: The Behaviors of Mean Reversion, Dependence and Persistence," MPRA Paper 117002, University Library of Munich, Germany.
    5. OlaOluwa Yaya & Rafiu Akano & Oluwasegun Adekoya, 2023. "Market Efficiency and Volatility Persistence of Green Investments Before and During the COVID-19 Pandemic," Asian Economics Letters, Asia-Pacific Applied Economics Association, vol. 4(1), pages 1-6.
    6. Maquieira, Carlos P. & Espinosa-Méndez, Christian & Gahona-Flores, Orlando, 2023. "How does economic policy uncertainty (EPU) impact copper-firms stock returns? International evidence," Resources Policy, Elsevier, vol. 81(C).
    7. Mensi, Walid & Ali, Syed Riaz Mahmood & Vo, Xuan Vinh & Kang, Sang Hoon, 2022. "Multiscale dependence, spillovers, and connectedness between precious metals and currency markets: A hedge and safe-haven analysis," Resources Policy, Elsevier, vol. 77(C).
    8. Adekoya, Oluwasegun B. & Oliyide, Johnson A. & Kenku, Oluwademilade T. & Al-Faryan, Mamdouh Abdulaziz Saleh, 2022. "Comparative response of global energy firm stocks to uncertainties from the crude oil market, stock market, and economic policy," Resources Policy, Elsevier, vol. 79(C).
    9. Xiao, Jihong & Liu, Hong, 2023. "The time-varying impact of uncertainty on oil market fear: Does climate policy uncertainty matter?," Resources Policy, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    CBOE fear gauge; Mean reversion; Fractional integration; Fractional cointegration; Technology stocks;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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