Hedge and safe haven role of commodities for the US and Chinese equity markets

We examine the hedge and safe-haven properties of four commodity classes (precious metals, energy, agriculture and livestock) for the overall and sectoral equity markets of the US and China. In doing so, we employ two quantiles-based approaches, quantile regression and cross-quantilogram, using daily data from 25 September 2014 to 06 July 2020. The hedging effectiveness (HE) and time-varying conditional diversification benefits (CDB) are estimated. Our findings indicate that precious metals and agricultural commodities are weak safe havens for all equity sectors of China and the United States. In contrast, energy and livestock commodities are weak safe havens only for the information technology and healthcare sectors. Precious metals show better HE, whereas all commodities offer strong CDB. Our findings may be helpful for sectoral investors offsetting equity losses by investing in various commodity classes. © 2023 John Wiley & Sons Ltd.

Network Topology of Dynamic Credit Default Swap Curves of Energy Firms and the Role of Oil Shocks

Using network analysis on the connectedness of default factors in a credit default swap (CDS) dataset of U.S. and European energy firms, we provide the first evidence of differences in the shape and dynamics of the interconnectedness of the level, slope, and curvature, representing long-, short-and middle-term default factors, respectively. The interconnectedness of the three default factors increases during the European sovereign debt crisis (ESDC), whereas only the interconnect-edness of the level factor increases during the oil price crash, and the interconnect-edness of both level and slope factors spikes during COVID19. European firms contribute more to the transmission of long-term and short-term default risk from early 2011 till the beginning of the 2014–2105 oil price crash;afterwards, U.S. firms are major default transmitters despite some periods of parity with European firms. The impacts of oil demand and supply shocks on the various interconnect-edness are quantile-dependent and more pronounced in the long term for the credit risk of the energy firms. © 2022 by the IAEE. All rights reserved.

Dependence dynamics of stock markets during COVID-19

Stock markets have exhibited increased returns connectedness during the COVID-19 period. We examine the returns dependence among 42 stock markets classified under various emerging and developed groupings. We apply several dependence measures to examine the returns connectedness among the markets. Our results show that stock markets from the G-7 and Emerging Frontier and Asian (EFA) region exhibit high connectedness with other international markets, while Middle East and North African (MENA) and Latin American (LA) stock markets offer high diversification opportunities through low returns connectedness. The returns coherence of Central and East European (CEE) and G-7 markets increase significantly during the COVID-19 period which supports the hypothesis of contagion. However, during the pandemic MENA stock markets (excluding Greece) and most EFA markets (excluding China, Singapore and Korea) remain less cointegrated with other international equity markets. Our results have implications for individual and institutional investors, fund managers and other financial market stakeholders.

From pandemic to systemic risk: contagion in the U.S. tourism sector. (Special Issue: COVID-19 and tourism.)

This paper investigates the interconnectedness among 95 tourism firms in the U.S. over the 2018-2020 period with a focus on the impact of the Covid-19 pandemic. The results using tail risk spillover analysis show that the level of risk contagion significantly increased during the Covid-19 pandemic. Small tourism firms become more systemically important during the Covid-19 pandemic while the level of bad risk contagion has a negative impact on the stock performance of US tourism firms.

Did COVID-19 Impact the Connectedness Between Green Bonds and Other Financial Markets? Evidence From Time-Frequency Domain With Portfolio Implications

COVID-19 has morphed from a health crisis to an economic crisis that affected the global economy through several channels. This paper aims to study the impact of COVID-19 on the time-frequency connectedness between Green Bonds and other financial assets. Our sample includes the global stock market, bond market, oil, USD index, and two popular hedging alternatives, namely Gold and Bitcoin, from May 2013 to August 2020. First, we apply the methodologies of Diebold and Yilmaz (International Journal of Forecasting, 2012, 28(1), 57-66) and Barunk and Krehlk (Journal of Financial Econometrics, 2018, 16(2), 271-296). Then, we estimate hedge ratios and hedge effectiveness of green bonds for other financial assets. Green bonds are found to have a great weight in the overall network, particularly strongly connected with the USD index and bond index. While the bi-directional relationship with USD persists during COVID, the connectedness with conventional bonds is also strengthened. Notably, we find a weak relationship between Green bonds and Bitcoin, both in the short and long run. As portfolio implications, Gold and USD have the highest hedge ratio, which is confirmed by the hedging effectiveness. In contrast, oil and stocks exhibit the lowest hedging effectiveness. Our findings imply that financial assets might have a heterogeneous relationship with green bonds. Furthermore, despite its infancy, it seems that the role of green bond during a crisis should not be ignored, as it can be a hedger for some assets, while a contagion amplifier during crisis times.

The hedge asset for BRICS stock markets: Bitcoin, gold or VIX

We compare the weak/strong hedging abilities of three alternative assets, namely bitcoin, gold and US VIX futures, against the downside movements in BRICS stock market indices. Results from the cross-quantilogram approach indicate that bitcoin and gold are weak hedges. Analysis from the recursive sampling shows that each of bitcoin, gold and VIX futures has a time-varying hedging role in some BRICS countries, which has been shaped by the COVID-19 outbreak. Results from the conditional diversification benefits show appealing roles for the three alternative assets for investors in BRICS stock markets. However, gold appears to have higher and more stable diversification benefits in China, especially during the COVID-19 outbreak. Conversely, VIX futures offer higher diversification benefits in Brazil, Russia, India and South Africa during the abrupt of the COVID-19 outbreak.

Intraday volatility transmission among precious metals, energy and stocks during the COVID-19 pandemic

In this study, we present the evidence of dramatic changes in the structure and time-varying patterns of volatility connectedness across equities and major commodities (oil, gold, silver and natural gas) in the US economy before and during the COVID-19 outbreak. We utilize high frequency 5-min trading data of most actively traded US ETFs to construct the volatility connectedness network. We compute the intraday volatility estimates using MCS-GARCH model and then employ Diebold and Yilmaz (2012) spillover index approach to approximate volatility spillovers between the financial markets. Our main findings showcase significant impact of COVID-19 pandemic on the volatility linkages of financial markets as the volatility connectedness among the different assets peaked during the outbreak. Other findings and implications of the study are further discussed. © 2021 The Authors