TY - JOUR
T1 - Economic activity, and financial and commodity markets’ shocks: An analysis of implied volatility indexes
AU - Urom, Christian
AU - Ndubuisi, G.O.
AU - Uzor, Jude
PY - 2021
Y1 - 2021
N2 - This paper examines the dynamic short- and long-run asymmetric interactions and causality between real economic activity and stock and gold markets volatility shocks using both the cointegration Nonlinear Autoregressive Distributed Lag and Granger causality tests. In a further analysis, we used both the original and the partial sums decomposition of these variables to examine the level of market integration under different market conditions using the spillover index of Diebold and Yilmaz (2009; 2012; 2014). Our results indicate asymmetries in the short- and long-term relationships among these variables. In the long run, both positive and negative shocks from the energy market increase stock market volatility. However, only positive shocks on the gold market increase stock market volatility, while positive (negative) shocks on economic activity reduce (increase) stock market volatility. Also, an increase in both stock and energy markets volatility shocks are detrimental to real economic activity. We find a feedback effect between real economic activity shocks and these market volatility indexes, except for the gold market which has a unidirectional causality with the real economic activity shocks. Finally, the spillover analysis suggests a stronger integration among the partial sums, with the energy market as the dominant net-transmitter of both positive and negative shocks while the gold market is a net-receiver of shocks. Our results hold crucial implications for both investors and policymakers.
AB - This paper examines the dynamic short- and long-run asymmetric interactions and causality between real economic activity and stock and gold markets volatility shocks using both the cointegration Nonlinear Autoregressive Distributed Lag and Granger causality tests. In a further analysis, we used both the original and the partial sums decomposition of these variables to examine the level of market integration under different market conditions using the spillover index of Diebold and Yilmaz (2009; 2012; 2014). Our results indicate asymmetries in the short- and long-term relationships among these variables. In the long run, both positive and negative shocks from the energy market increase stock market volatility. However, only positive shocks on the gold market increase stock market volatility, while positive (negative) shocks on economic activity reduce (increase) stock market volatility. Also, an increase in both stock and energy markets volatility shocks are detrimental to real economic activity. We find a feedback effect between real economic activity shocks and these market volatility indexes, except for the gold market which has a unidirectional causality with the real economic activity shocks. Finally, the spillover analysis suggests a stronger integration among the partial sums, with the energy market as the dominant net-transmitter of both positive and negative shocks while the gold market is a net-receiver of shocks. Our results hold crucial implications for both investors and policymakers.
UR - http://www.scopus.com/inward/record.url?scp=85097900238&partnerID=8YFLogxK
U2 - 10.1016/j.inteco.2020.11.005
DO - 10.1016/j.inteco.2020.11.005
M3 - Article
SN - 2110-7017
VL - 165
SP - 51
EP - 66
JO - International Economics
JF - International Economics
ER -