Asymmetric spillover and network connectedness between crude oil, gold, and Chinese sector stock markets

This paper examines the asymmetric return spillovers between crude oil futures, gold futures and ten sector stock markets of China. The results show using the spillover index of Diebold and Yilmaz (2012, 2014) time-varying asymmetry spillovers among commodity and the ten sectors. Industrials and consumer discretionary sectors are the largest contributor and receiver of spillovers in the system. In addition, basic materials sector is a net contributor of spillovers whereas oil futures, gold futures and the remaining sectors are net receiver of spillovers. Furthermore, the bad return spillovers dominate the good return spillovers. The asymmetry spillovers are influenced by the global financial and European crises (GFC & ESDC), oil price crash and global health crisis (COVID-19 outbreak). Equity investors benefit from adding gold and oil to their individual equity markets. Moreover, the hedging is sensitive to the GFC & ESDC, oil price crash, and COVID-19 outbreak. Finally, the highest hedging effectiveness occurs during COVID-19 spread for the case of oil futures. The result is similar for gold under only good spillovers and it is highest during recovery period under bad spillovers. (c) 2021 Elsevier B.V. All rights reserved.

Automated summary

This study examined the asymmetric return spillovers between crude oil futures, gold futures, and the ten sector stock markets of China, using the spillover index of Diebold and Yilmaz. The results showed time-varying asymmetry spillovers among commodities and the ten sectors, with industrials and consumer discretionary sectors being the largest contributors and receivers of spillovers. Bad return spillovers dominated good return spillovers and were influenced by global financial crises, oil price crashes, and the COVID-19 outbreak. Equity investors benefited from adding gold and oil to their individual equity markets, especially during times of crisis.