Amine Ben Amar, Stéphane Goutte, Amir Hasnaoui, Amine Marouane and Héla Mzoughi
This study aims to investigate the dependence structure and volatility spillovers among two strategic commodities (crude oil and gold) and a set of Islamic and conventional…
Abstract
Purpose
This study aims to investigate the dependence structure and volatility spillovers among two strategic commodities (crude oil and gold) and a set of Islamic and conventional regional stock market indices, while examining the Ramadan effect
Design/methodology/approach
The empirical strategy consists of two complementary measures of dependence and connectedness. This study first uses copulas to examine the dependency between the markets considered, then spillovers compute the magnitude of the connectedness among them.
Findings
The copulas analysis shows that Frank’s copula appears to better capture the relationship between most asset returns and highlights the almost absence of extreme dependence and, therefore, the existence of diversification opportunities. Moreover, the connectedness analysis suggests that gold is a net volatility receiver and provides, thereby, greater diversification benefits compared to crude oil. In addition, the high levels of time-varying connectedness support strong integration among the financial markets studied, specifically during the COVID-19 crisis period. Furthermore, the connectedness among the markets studied increases during the Ramdan subperiods, supporting shift contagion among financial markets considered during this religious holiday.
Practical implications
The results provide investors with a better understanding of the nature as well as the magnitude of the interdependences between commodity markets and a set of Islamic and conventional regional stock markets. Indeed, it is of paramount importance for investors to clearly understand how Islamic and conventional markets are segmented or integrated during stress and stress-free periods, as well as the effect of the month of Ramadan on the interdependence among markets, to better assess risks, diversify portfolios and implement more effective hedging strategies.
Originality/value
While a considerable body of literature examines financial contagion and volatility transmission between financial markets, there is still much to be said regarding connectedness among commodity and stock markets, particularly when it comes to studying the effects of religious holidays on the interaction between conventional and Islamic assets. This paper fills in this gap by focusing on the dependence structure as well as the connectedness between Islamic stock indices, conventional stock indices, gold and crude oil for six different regions, while examining the Ramadan effect.
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Amine Ben Amar, Amir Hasnaoui, Nabil Boubrahimi, Ilham Dkhissi and Makram Bellalah
This study aims to elucidate the volatility spillovers among commodities, equities and socially responsible investments, underpinning their dynamic correlations during the…
Abstract
Purpose
This study aims to elucidate the volatility spillovers among commodities, equities and socially responsible investments, underpinning their dynamic correlations during the economic instability wrought by the COVID-19 pandemic and associated financial crises.
Design/methodology/approach
This research quantitatively analyzes volatility transmission across various financial assets from January 2005 to October 2020 by employing the Diebold and Yilmaz (2012) spillover index. The methodology incorporates a temporal examination to capture the evolution of volatility dependencies pre and post the emergence of COVID-19.
Findings
The findings indicate substantial volatility spillovers among the assets in question, aligning with the current financialisation of commodity markets and a rise in financial market integration. These spillovers also show variation over time. Notably, the interconnectedness among the assets intensifies during periods of stress. For instance, the total spillover index significantly surpassed 80% toward the end of January 2020, following the onset of the COVID-19 crisis. Furthermore, the results imply that financial markets appear to be segmented.
Practical implications
The findings afford investors a more comprehensive insight into both the character and scale of the interdependencies across a broad array of financial markets. Indeed, grasping the extent to which financial markets are segmented or integrated during times of stress and stability is crucial for investors. Such understanding is key to more accurately evaluating risks, diversifying investment portfolios and devising more efficient hedging strategies.
Originality/value
This study contributes to financial literature by offering a comprehensive investigation into the spillover effects across a diverse set of asset classes during an unprecedented global health crisis, filling a gap in existing research on market behavior against the backdrop of a pandemic-induced financial crisis.