Spillover effects between energies, gold, and stock: the United States versus China

Abstract

This study investigates the time–frequency dynamics of return and volatility spillovers between the stock market and three commodity markets: natural gas, crude oil, and gold via a comparative analysis between the United States and China is conducted with the help of new empirical methods. Our findings are as follows. First, in terms of time, return spillovers between crude oil and the stock market are strongest in two of the three commodity markets. Crude oil emits a net negative return spillover to the US stock market, and a net positive return spillover to the Chinese stock market. By contrast, the strongest volatility spillover effect is transmitted to the stock markets of both countries through gold. However, gold has a net positive volatility spillover effect on the US stock market and a net negative effect on the Chinese stock market. In the frequency domain, most of the return spillover is produced in the short term, and most of the volatility spillover occurs in the long term. In addition, the moving-window method reveals the dynamic nature of the spillover effect. Some extreme events can have a dramatic effect on the spillover index. Conversely, the spillover effect differs significantly between the two countries and is characterized by time variation and frequency dependence.

Spillovers to Renewable Energy Stocks in the US and Europe: Are They Different?

“…The return spillovers from all energy markets and financial variables to renewable energy stocks in both the US and Europe increased steadily during the 2008 global financial crisis and reached a peak during the European debt crisis. This result supports the view that a link between the commodity and financial markets would increase during periods of financial turmoil [41,42]. According to Ferrer et al [19], we can interpret the increased spillover via uncertainty.…”

“…Thereafter, the return spillovers to renewable energy stocks in both regions increased drastically after 2015 and 2018 because of the OPEC's 2014 announcement that it would maintain production despite declining prices, and the China-US trade war, which led to stock and bond market instability from 2018. He et al [41] and Bhardwaj et al [42] also stated that the links between commodity and financial markets would increase during periods of financial turmoil. A plausible explanation is that market participants review and process any positive or negative information more thoroughly during a period of high uncertainty, thus stimulating an increase in spillovers to renewable energy stocks.…”

“…Unlike the spillovers of return, the spillovers of volatility are mostly concentrated in the lowest frequency (over 21 days) in both regions. As He et al [41] state, volatility shocks to any market will not be transmitted to other markets immediately, which implies that transmitted shocks show long-lasting (long memory) effects on other market volatilities. Figures 7 and 8 show the time dynamic pairwise return spillovers from fossil energy prices (natural gas and crude oil), the stock market index, the VIX, and 10-year government bond yields to renewable energy stocks in the US and Europe, respectively.…”

Revisiting spillover effect: An empirical evidence from GARCH-ARMA approach

“…Bouri (2015) also revealed the entire period exposes low unidirectional transmissions of return and volatilities from oil to the stock market. He et al (2020) found the greatest return spillovers between the oil and stock market. Crude oil has a negative spillover return to the stock market, while the stock market has a positive spillover return.…”

“…He stated that oil prices negatively affect the exchange rate, and the equity market affects the exchange rate. He et al (2020) proved gold has a positive and negative spillover in both the USA and China's stock market, respectively. Malik and Hammoudeh (2007) confirmed volatility and spillover studies have an excellent effect on asset pricing, portfolio managers, oil price, and equity.…”