Realized higher-order moments spillovers between commodity and stock markets: Evidence from China

ABSTRACT

Using 5-min data of Chinese stock market index and eight Chinese commodity futures (soybean, wheat, corn, gold, silver, copper and aluminum, crude oil) from March 26, 2018 to October 22, 2020, we analyze the dynamic spillover connectedness of returns and realized moments, including realized volatility, realized skewness, and realized kurtosis, during various shock periods via a time-varying parameter vector autoregression (TVP-VAR) connectedness approach. The results show that spillover effects between stock and commodity markets intensify during shock periods such as ‘Trade disputes between China and the United States’ and ‘COVID-19’. Volatility spillovers are relatively stronger;however, higher-order moment spillovers contain additional information of stock-commodity spillovers that cannot be observed from volatility spillovers. Shocks from the silver market influence all three realized moments of the entire financial markets. Soybean, corn, aluminum, and oil markets are easily affected by other markets. The contribution of wheat to the system of spillovers between stock and commodity markets is only observed at higher-order moments. Further analyses involving OLS and quantile regressions show that total spillovers are generally affected by the US stock market and economic uncertainties as well as the COVID epidemic. We construct daily realized volatility, skewness, and kurtosis using 5-min data of eight Chinese commodity futures and the Chinese stock market index from March 26, 2018 to October 22, 2020, then analyse the dynamic spillovers of realized moments among these markets. The results show that the spillover effects between commodity and stock markets intensify during shock periods such as ‘trade disputes between China and the United States’ and ‘COVID-19’. Volatility spillovers are relatively stronger than spillovers in skewness or spillovers in kurtosis;however, spillovers in higher-order moments seem to contain additional information. Shocks from the silver market influence realized moments of other markets. Soybean, corn, aluminium, and oil markets are affected by other markets. The contribution of wheat as a net transmitter to the system of spillovers between stock and commodity markets is only observed at higher-order realized moments. The results from OLS and quantile regressions show that the total spillovers are generally affected by the US stock market, economic uncertainties, and the COVID-19 outbreak.