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How the pandemic-led volatility in the natural resource commodity indices affect U.S and China markets

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  • Guo, Qingran
  • Ahmed, Khalid
  • Ding, Cuicui
  • Khan, Bareerah

Abstract

Using asymmetric and Markov switching GARCH model on daily time series data from January 22, 2020 to March 22, 2022, the study analyzes the impact of COVID-19 on natural resource commodity index returns in the U.S and China. The results find strong evidence of COVID-19 on the volatility of natural resource commodity index return for both China and the U.S. However, the intensity of this effect varies based on volatility regimes, with the Chinese market experiencing stronger effects during calmer regimes (periods with low intensity in COVID-19 cases) and weaker effects in turbulent regimes (periods with high intensity in COVID-19 cases). This could be due to market control measures in China. In contrast, the U.S market shows a more pronounced COVID-19 effect in turbulent regimes, attributed to the openness of the market and the prevalence of speculative participants. The study suggests that the U.S market participants, driven by a goal to profit from price differences, amplify their activity during turbulent periods, leading to increased volatility transfers during the consecutive spells of high COVID-19 cases. The findings highlight the difference in the structures of financial markets in China and the U.S., thus possessing important policy implications for investors in the sector.

Suggested Citation

  • Guo, Qingran & Ahmed, Khalid & Ding, Cuicui & Khan, Bareerah, 2024. "How the pandemic-led volatility in the natural resource commodity indices affect U.S and China markets," Resources Policy, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:jrpoli:v:90:y:2024:i:c:s030142072400103x
    DOI: 10.1016/j.resourpol.2024.104736
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    More about this item

    Keywords

    COVID-19; Natural resources sector index; Market volatility; GARCH model; U.S; China;
    All these keywords.

    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics

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