RESUMO
This study examines the return and volatility connectedness between the rare earth stock market and clean energy markets, world equity, base metals, gold, and crude oil. Using daily data from September 21, 2010 to August 28, 2020, a time-varying parameter vector autoregression (TVP-VAR) approach to connectedness is applied to uncover the dynamics of connectedness during the entire period and the COVID-19 pandemic period. Volatility connectedness is generally stronger than return connectedness. However, the return and volatility connectedness pattern varies over the full sample period, exhibiting a significant spike following the abrupt COVID-19 outbreak in February-March 2020. The rare earth index shows a close interdependence with the clean energy, world equity, and oil indexes during the outbreak of the pandemic, though it mostly remains a return and volatility receiver over the entire period. During the COVID-19 outbreak, the rare earth stock index becomes more central to the network of connectedness for both return and volatility, showing strong interdependence with clean energy and world equity. The volatility of the rare earth stock index exhibits a strong interdependence with that of crude oil prices. Our findings help investors understand diversification benefits and investment protection. They support policymakers in developing strategies for lessening import dependence on rare earth metals.
