Return and Volatility Transmissions between Metals and Stocks: A Study of the Emerging Asian Markets by Using the VAR-AGARCH Approach

This study examines the return and volatility transmission/spillover between (Precious and Industrial) metals and stocks in the emerging Asian markets in the entire studying period and the two crisis sub-periods: the global financial crisis (GFC) and the Chinese Stock market crash sub-periods, and the normal sub-period that does not have any crisis. In addition, we estimate the optimal weights and hedge ratios for both metals and stocks. Employing the VAR-AGARCH model to estimate spillover, the results reveal the unidirectional return spillover from both precious and industrial metals to most of the Asian equity markets in the entire period as well as in the GFC and normal sub-periods but not the sub-period of the Chinese stock market crash. Besides, we reveal that there are unidirectional or bidirectional volatility transmissions between most of the precious metals and the Asian stock markets during the entire period and all the sub-periods. In contrast, the volatility spillover is not significant between most of the industrial metals and Asian stock markets during the entire period and all the sub-periods. On the other hand, our analysis on both optimal weight and hedge ratios suggests that adding nearly any metal to a portfolio of emerging Asian stocks improves its risk-adjusted return and helps to effectively hedge against stock risk exposure over both crisis and non-crisis sub-periods. Overall, these findings provide useful insights for portfolio diversification, asset pricing, and risk management.

Spillovers from the Slowdown in China on Financial and Energy Markets: An Application of VAR–VECH–TARCH Models

The 2008 global financial crisis provides us with a wide range of study fields on cross-asset contagion mechanisms in the US financial markets. After a decade of the so-called subprime crisis, the impact of market news on asset volatilities increased significantly. Consequently, return and volatility spillovers became the most extensive channel for spreading out the news generated in one market to the other ones, which made the financial markets inherit international risk factors as their own local risks. Moreover, as a result of the Chinese economy becoming the main driver of the global economy in the last decade, Chinese markets became more interconnected with developed markets which were followed by a “digital cold war” era via Twitter. In this study, we investigate the relationship between the US stock market, Chinese stock markets, rare earth markets and industrial metals, and mining products via three different models by utilizing VAR–VECH–TARCH models. According to our findings, bilateral spillover exists between US and Chinese stock markets. Cross-market spillovers show that there is a risk transmission channel between the industrial metals, rare earth, and Chinese and US stock markets due to China’s strengthening position in the global economy.