Hela Mzoughi, Yosra Ghabri and Khaled Guesmi
This paper aims to empirically investigate the extent to which interdependence in markets may be driven by COVID-19 effects.
Abstract
Purpose
This paper aims to empirically investigate the extent to which interdependence in markets may be driven by COVID-19 effects.
Design/methodology/approach
The current global COVID-19 pandemic is adversely affecting the oil market (West Texas Intermediate) and crypto-assets markets.
Findings
The authors find that the dependence structure changes significantly after the global pandemic, providing valuable information on how the COVID-19 crisis affects interdependencies. The results also prove that the performance of digital gold seems to be better compared to stablecoin.
Originality/value
The authors fit copulas to pairs of before and after returns, analyze the observed changes in the dependence structure and discuss asymmetries on propagation of crisis. The authors also use the findings to construct portfolios possessing desirable expected behavior.
Details
Keywords
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.