Return and volatility connectedness between gold and energy markets: Evidence from the pre- and post-COVID vaccination phases

ABSTRACT

Using a two-step VAR asymmetric BEKK GARCH model, this research explores the asymmetric return and volatility connectedness between gold and several energy markets during three subperiods pre-COVID, before vaccination, and after vaccination. Gold's returns and volatility spillover are generally found to be time- and energy-dependent. In addition, the optimal weights, hedge ratios, and hedging effectiveness of energy commodity and gold pairs are calculated during the three subperiods. The results of optimal weights show that investors should increase their investment in energy commodities more than gold (energy commodities) during the after-vaccination period (the pre-vaccination period). Moreover, the hedging strategy would only be effective within the COVID-19 vaccination period, which could have implications for the strategic asset allocation of policy-makers and international investors. Finally, we examine the potential determinants of conditional correlations between gold and energy markets. VIX, EPU, and new confirmed cases are found to be the main predictors of correlations for most energy commodity-gold pairs during the examined period.