Volatility returns with vengeance: Financial markets vs. commodities |
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| Institution: | 1. Rawls College of Business, Texas Tech University, Lubbock, TX 79409-2101, United States;2. College of Business, Zayed University, P. O. Box 19282, Dubai, United Arab Emirates;1. Vienna University of Economics and Business, Department of Economics, Institute for International Economics, Welthandelsplatz 1, 1020 Vienna, Austria;2. University of Portsmouth, Economics and Finance Subject Group, Portsmouth Business School, Portland Street, Richmond Building, Portsmouth PO1 3DE, United Kingdom;3. Technological Educational Institute of Crete, Department of Accounting and Finance, 71004 Crete, Greece;4. Hellenic Open University, School of Social Sciences, Greece |
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| Abstract: | To assess how financial markets and commodities are inter-related, this paper introduces a ‘volatility surprise’ component into the asymmetric DCC with one exogenous variable (ADCCX) framework. We develop an econometric model in which returns and volatility allow to influence pairs of assets, and derive several case studies linking commodities to stocks, bonds and currencies from 1983 to 2013. The innovative feature of our model is that these volatility spillovers are modeled consistently within the correlation dynamics of the ADCCX. We find evidence that return and volatility spillovers do exist between commodity and financial markets and that in turn, their relative impact on each other is very substantial. |
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| Keywords: | Volatility spillovers Financial markets Commodities ADCCX |
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