Do geopolitical risks and global market factors influence the dynamic dependence among regional sustainable investments and major commodities?

Christian Urom*, Gideon Ndubuisi

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

1 Citation (Scopus)
7 Downloads (Pure)

Abstract

This paper uses the Quantile Vector-Autoregressive (Q-VAR) technique to examine the connectedness between three regional (North America, Europe and Asia-Pacific) sustainability indices and major natural resource commodities including energy commodities (crude oil and natural gas), precious metals (gold, silver, and platinum), and industrial metals (steel, aluminium, and copper). It also uses a linear regression model to investigate the macroeconomic and geopolitical factors that drive the connectedness among these investments. The QVAR results reveal asymmetric connectedness among these investment indices, with the levels of total connectedness during extreme downside and upside market conditions being significantly stronger than the level of connectedness during normal market condition. The results also show that, on average, the amount of shocks the regional sustainable investment indices each received from the studied energy and metal commodity markets are higher (lower) than what they transmit to the commodity market during the extreme upside (downside) market condition. During the normal market condition, however, only the Asian Pacific sustainable investment receives more shock than it transmits to the studied commodity market indices, making a net shock receiver. Finally, geopolitical risks, business environment conditions, gold and fixed income markets and economic policy uncertainty are important predictors of return connectedness, although the predictive strength and direction vary across market conditions. We discuss the implications of our findings.
Original languageEnglish
Pages (from-to)94-111
Number of pages18
JournalQuarterly Review of Economics and Finance
Volume91
DOIs
Publication statusPublished - 2023

Bibliographical note

Green Open Access added to TU Delft Institutional Repository ‘You share, we take care!’ – Taverne project https://www.openaccess.nl/en/you-share-we-take-care Otherwise as indicated in the copyright section: the publisher is the copyright holder of this work and the author uses the Dutch legislation to make this work public.

Keywords

  • Business condition
  • Energy commodities, Industrial and Precious metals
  • Geopolitical risk
  • Quantile connectedness
  • Sustainable investment

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