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Dynamic correlation and volatility spillovers across Chinese stock and commodity futures markets
Author(s) -
Kang Sang Hoon,
Yoon SeongMin
Publication year - 2020
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1750
Subject(s) - economics , futures contract , financial economics , downside risk , volatility (finance) , econometrics , stock (firearms) , portfolio , contango , vector autoregression , stock market , mechanical engineering , paleontology , horse , engineering , biology
This paper examines the return links and volatility transmission between Chinese stock and commodity futures markets and draws implications for portfolio risk management. To these ends, we consider three vector autoregression‐multivariate generalized autoregressive conditional heteroskedasticity‐class models with which to model volatilities and conditional correlations between Chinese stock and three commodity futures markets. Our empirical results reveal evidence of return linkage and volatility transmission between the Chinese stock and commodity futures markets. We also analyse optimal portfolio weights and hedging ratios between s1tock–commodity pairs. Finally, we assess implications for mixed commodity–stock portfolios and find strong evidence of hedging effectiveness and downside risk reductions.