Price spillovers between rare earth stocks and financial markets

Abstract

We study price transmission between rare earth stocks and the base metals, gold, clean energy, oil and global MSCI stock markets. Using a Markov switching vector autoregressive model that accounts for different volatility regimes, our empirical findings reveal that price connectedness between rare earth (RE) and other stock markets differs across volatility regimes. Specifically, in a low-volatility regime: (a) RE stocks are linked to the base metals market, receiving and transmitting sizeable price spillovers, and (b) RE stocks are weakly connected with clean energy, gold, oil and general stock markets. In contrast, in a high-volatility regime, there is increased RE price co-movement with price oscillations in the clean energy, oil and general stock markets. These findings have implications for hedging risk associated with positions in RE companies using other financial assets.