Dynamic spillovers and portfolio risk management between defi and metals: Empirical evidence from the Covid-19

Using a novel TVP-VAR approach, we investigate the connectedness between precious metals, industrial metals, and decentralized finance (DeFi) assets during pre-pandemic and Covid sub-periods. We also calculate optimal portfolio weights, hedge ratios, and hedging effectiveness estimates for the portfolios of metals and DeFi assets. Results reveal that the association between DeFi-precious metal and DeFi-industrial metal pairs is weaker compared to the association between traditional precious and industrial metals. The interconnectedness of these markets increased during the Covid-19 period. All DeFi assets, as well as palladium, aluminum, zinc, and Nickel, are net importers of return spillover, while gold, silver, platinum, and copper are net exporters of return spillovers. The return transmission between these markets is rolling, with rapid fluctuations during the Covid-19 period. Finally, the optimal portfolio analysis reveals that adding DeFi assets to the metals-based portfolio is helpful in terms of diversification. These findings are insightful for portfolio managers and policymakers regarding portfolio construction, portfolio adjustment, hedging, and market stability.

Analysis of the dynamic return and volatility connectedness for non-ferrous industrial metals during the COVID-19 pandemic crisis

PurposeThis paper aims to examine the dynamic return and volatility connectedness for six major industrial metals (tin, lead, nickel, zinc, copper and aluminium) and the coronavirus media coverage index (MCI).Design/methodology/approachTo that purpose, this study applies the fresh time-varying parameter vector autoregression methodology (TVP–VAR model) during the sample period between 2 January, 2020, and 16 April, 2021, that is, covering the three waves of the COVID-19 pandemic crisis.FindingsThis study's results show interesting findings. First, dynamic total return and volatility connectedness changes over time, highlighting a significant increase during the third wave of the pandemic. Second, the MCI index is a leading net transmitter in terms of return and volatility at the introduction of the SARS-CoV-2 coronavirus crisis. Third, this study clearly distinguishes two profiles among industrial metals: copper and tin/zinc as net transmitters and lead and aluminium as net receivers. Finally, the most relevant differences between them are concentrated not only at the beginning of the COVID-19 pandemic (first wave) but also during the second and third waves of the coronavirus outbreak.Originality/valueTo the best of the authors' knowledge, this is the first research that explores the dynamic return and volatility connectedness in the industrial metal market, applying the TVP–VAR methodology during the first waves of the COVID-19 pandemic crisis.

Are commodity futures a hedge against inflation? A Markov-switching approach

This study examines the inflation hedging ability of various commodity futures using Markov-switching vector error correction models (MS-VECM). We find that total commodity futures fail to provide a hedge against inflation over the sample period between January 1983 and December 2021. However, industrial metals and precious metals are able to hedge against inflation. Other sub-indexes, including energy, agriculture, and livestock, do not have a significant inflation hedging ability. The inflation hedging capacity of industrial metals exhibits substantial variation over time, with most of the inflation hedging power occurring during the relatively longer and more common regimes covering the Great Moderation, the post-subprime crisis, and the periods after the outbreak of the COVID-19 pandemic. We further evaluate the inflation hedge ability of commodity futures by including stocks and bonds in the model. Our results suggest that industrial metals are more reliable inflation hedges. © 2023 Elsevier Inc.

Are commodity futures a hedge against inflation? A Markov-switching approach

This study examines the inflation hedging ability of various commodity futures using Markov-switching vector error correction models (MS-VECM). We find that total commodity futures fail to provide a hedge against inflation over the sample period between January 1983 and December 2021. However, industrial metals and precious metals are able to hedge against inflation. Other sub-indexes, including energy, agriculture, and livestock, do not have a significant inflation hedging ability. The inflation hedging capacity of industrial metals exhibits substantial variation over time, with most of the inflation hedging power occurring during the relatively longer and more common regimes covering the Great Moderation, the post-subprime crisis, and the periods after the outbreak of the COVID-19 pandemic. We further evaluate the inflation hedge ability of commodity futures by including stocks and bonds in the model. Our results suggest that industrial metals are more reliable inflation hedges.

Analysis of the dynamic return and volatility connectedness for non-ferrous industrial metals during the COVID-19 pandemic crisis

Purpose: This paper aims to examine the dynamic return and volatility connectedness for six major industrial metals (tin, lead, nickel, zinc, copper and aluminium) and the coronavirus media coverage index (MCI). Design/methodology/approach: To that purpose, this study applies the fresh time-varying parameter vector autoregression methodology (TVP–VAR model) during the sample period between 2 January, 2020, and 16 April, 2021, that is, covering the three waves of the COVID-19 pandemic crisis. Findings: This study’s results show interesting findings. First, dynamic total return and volatility connectedness changes over time, highlighting a significant increase during the third wave of the pandemic. Second, the MCI index is a leading net transmitter in terms of return and volatility at the introduction of the SARS-CoV-2 coronavirus crisis. Third, this study clearly distinguishes two profiles among industrial metals: copper and tin/zinc as net transmitters and lead and aluminium as net receivers. Finally, the most relevant differences between them are concentrated not only at the beginning of the COVID-19 pandemic (first wave) but also during the second and third waves of the coronavirus outbreak. Originality/value: To the best of the authors’ knowledge, this is the first research that explores the dynamic return and volatility connectedness in the industrial metal market, applying the TVP–VAR methodology during the first waves of the COVID-19 pandemic crisis. © 2022, Emerald Publishing Limited.

Risk transmission from the COVID-19 to metals and energy markets.

We examine the risk transmission from the COVID-19 to metal (precious and industrial) and energy markets using the BEKK-MGARCH model. The findings reveal the significant and negative volatility transmission from the COVID-19 to gold, palladium, and brent oil markets, suggesting the safe-haven properties of these markets. The COVID-19 risk is not transmitted to the industrial metal market, whereas the rise in COVID-19 volatility leads to an increase in WTI oil market volatility. These results provide useful insights to investors and policymakers regarding risk management, asset pricing, and financial market stability during the COVID-19 pandemic.