The Impacts of the Infectious Disease Epidemic on the Permanent Volatility of Precious Metal and Crude Oil Futures Markets: A Long-Term Perspective

Yue Shang,Yu Wei,Yifeng Zhang,Xiaodan Chen,Dehua Shen

doi:10.1155/2021/2800671

Yue Shang, Yu Wei + Show 3 more

Open Access

https://doi.org/10.1155/2021/2800671

Copy DOI

Abstract

The aim of this paper is to identify the quantitative impacts of the infectious disease pandemic on the permanent volatility of precious metal and crude oil futures from a long-term perspective by using a recently constructed Infectious Disease Equity Market Volatility Tracker (ID-EMV) to capture the epidemic severity and with a novel mixed data sampling GARCH (GARCH-MIDAS) method. Different from the extant literature only focusing on the short-term influences of the COVID-19 epidemic on commodity futures market, this paper shows that the infectious disease pandemic does have significant and positive impacts on the permanent (long-term) volatilities of precious metal and crude oil futures markets lasting for at least up to 12 months. In addition, these specific impacts on crude oil futures are greater than those on precious metal futures. Finally, we find that the infectious disease epidemic has larger impacts on gold (WTI oil) futures than those on silver (Brent oil) futures. All these findings are robust after controlling the negative influences of lagged long-run realized volatility in commodity futures markets.

Highlights

IntroductionIntroduction e outbreak of COVID19 has caused huge losses in the global real economy and financial markets, especially in the commodity futures markets due to its direct impacts on both the demand and supply chain of commodities [1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17]
Erefore, this paper focuses on quantifying the impacts of the infectious disease epidemic on the permanent volatility of two import commodity futures, i.e., precious metal and crude oil
E major empirical results show that the infectious disease epidemic does have positive impacts on the long-run volatilities of gold, silver, Brent, and WTI crude oil futures, and these effects can last from short term (3 months) to relative long term (12 months)

Summary

Introduction

Introduction e outbreak of COVID19 has caused huge losses in the global real economy and financial markets, especially in the commodity futures markets due to its direct impacts on both the demand and supply chain of commodities [1,2,3,4,5,6,7,8,9,10,11,12,13,14,15,16,17]. Accompanied with the plunge in oil prices, precious metal prices keep on an upward trend in general during the COVID-19 pandemic. The hedging role of precious metals in crude oil assets have been widely discussed in the literature, no research focuses on the quantitative impacts of the infectious disease epidemic on the volatility, especially the permanent volatility, of precious metal and crude oil futures market from a long-term perspective. To the best knowledge of the authors, this paper is the first research focusing on the quantitative impacts of the infectious disease pandemic on the permanent volatility of precious metal and crude oil futures markets by using a recently invented Infectious Disease Equity Market Volatility Tracker (ID-EMV) to capture the epidemic severity and with a long-term data sample through 2010 to 2020

Objectives

Methods

Conclusion