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Measurement of Volatility Spillovers and Asymmetric Connectedness on Commodity and Equity Markets

Author

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  • Tereza Palanska

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

Abstract

We study total, directional, and asymmetric connectedness between four commodity futures and S&P 500 Index over the 2002-2015 period by employing a recently developed approach based on realized measures and variance decomposition. We estimate that, on average, volatility transmission accounts for around one-fifth of the volatility forecast error variance. The shocks to the stock markets play the most crucial role. Volatility spillovers were limited before the 2008 financial crisis, and then sharply increased during the crisis. The directional spillovers detect quite low connectedness between soft agricultural commodities and the rest of the assets that we study, which may improve portfolio investors' trading strategies. Finally, we analyze asymmetric connectedness. Our results defy the common perception that adverse shocks impact volatility spillovers more heavily than the positive ones. Overall, we provide new insights into volatility transmission between analyzed markets, which may inform investment decisions and hedging strategies.

Suggested Citation

  • Tereza Palanska, 2020. "Measurement of Volatility Spillovers and Asymmetric Connectedness on Commodity and Equity Markets," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(1), pages 42-69, February.
    • Handle: RePEc:fau:fauart:v:70:y:2020:i:1:p:42-69
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    File URL: http://journal.fsv.cuni.cz/mag/article/show/id/1454
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    Cited by:

    1. Dejan Živkov & Boris Kuzman & Jonel Subić, 2022. "Measuring the risk-adjusted performance of selected soft agricultural commodities," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(3), pages 87-96.
    2. Shah, Adil Ahmad & Dar, Arif Billah, 2021. "Exploring diversification opportunities across commodities and financial markets: Evidence from time-frequency based spillovers," Resources Policy, Elsevier, vol. 74(C).
    3. Zaghum Umar & Oluwasegun Babatunde Adekoya & Mariya Gubareva & Sabri Boubaker, 2024. "Returns and volatility connectedness among the Eurozone equity markets," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3103-3122, July.
    4. Garcia-Jorcano, Laura & Sanchis-Marco, Lidia, 2022. "Spillover effects between commodity and stock markets: A SDSES approach," Resources Policy, Elsevier, vol. 79(C).
    5. Liu, Pan & Power, Gabriel J. & Vedenov, Dmitry, 2021. "Fair-weather Friends? Sector-specific volatility connectedness and transmission," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 712-736.
    6. Das, Suman & Roy, Saikat Sinha, 2023. "Following the leaders? A study of co-movement and volatility spillover in BRICS currencies," Economic Systems, Elsevier, vol. 47(2).
    7. Dejan Živkov & Suzana Balaban & Marijana Joksimović, 2022. "Making a Markowitz portfolio with agricultural commodity futures," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 68(6), pages 219-229.
    8. Walid Abass Mohammed, 2021. "Volatility Spillovers among Developed and Developing Countries: The Global Foreign Exchange Markets," JRFM, MDPI, vol. 14(6), pages 1-30, June.

    More about this item

    Keywords

    volatility; spillovers; connectedness; asymmetry; commodity;
    All these keywords.

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q02 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Commodity Market

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