Volatility spillovers and time-varying correlations across stock and commodity markets: An assessment during the epidemic crisis era

Abstract

The financial and economic stability of the business world is greatly damaged by a number of crises over the years. These crises also change and affect stock markets around the globe. This study examines the nonlinear behavior of well-known stock markets in the US, Europe, Canada, and Asia (S&P 500, Nikkei 225, CAC40, DAX30, Bombay Stock Index, Hang Seng Index, and Canadian Stock Index). We also investigate the commodity indexes (Gold, Bitcoin, Brent Crude Oil, and West Texas Crude Oil). The transmission of returns and the volatility propagation pattern across stock-commodity markets during the COVID-19 era is analyzed using the VAR DCC MEGARCH model. The results demonstrate that correlations intensify and become more complicated during the COVID-19 period, especially between financial market indices and oil commodity indices. However, the volatility spillover statistics during the pandemic period show a definite rise in the uncertainty of financial market indices due to index instability. The analysis also shows that financial markets experience a substantial leverage effect during the pandemic crisis. According to the research, Bitcoin is crucial for reducing portfolio risk during the health crisis, and gold proves to be the best option for investors to diversify their financial risk.