High frequency volatility spillover between oil and non-energy commodities during crisis and tranquil periods

Abstract

In this article, we scrutinize volatility spillover between oil and individual non-energy commodities during crisis and non-crisis periods. We use high-frequency data to capture the effects of both the global financial crisis (2008) and the COVID-19 pandemic between 2008 and 2022. To this end, we utilize wavelet coherence analysis to diagnose the magnitudes of dynamic co-movements and lead-lag effects between commodities. Our results provide evidence of strong coherence between oil and the majority of individual non-energy commodities during both crises. Precious metals were generally found to exhibit heightened levels of co-movement with oil as opposed to other non-energy commodities. On the other hand, weak co-movements were found between oil and a few commodities, namely soy, wheat, zinc, and tin. The lead-lag effects of oil on agricultural commodities, base metals, and precious metals were evident, especially during crisis periods. However, aluminium and precious metals, especially gold, silver, and palladium, also had a lead-lag effect on oil at different points in time, including during the pandemic. We further utilize dynamic frequency-domain connectedness for capturing pairwise volatility spillover indices, with the results providing evidence of heightened volatility spillovers during turbulent times. Our findings have significant implications for retail investors, portfolio managers, and policymakers.