Time-frequency volatility transmission among energy commodities and financial markets during the COVID-19 pandemic: A Novel TVP-VAR frequency connectedness approach

Jionghao Huang; Baifan Chen; Yushi Xu; Xiaohua Xia

doi:10.1016/j.frl.2023.103634

Time-frequency volatility transmission among energy commodities and financial markets during the COVID-19 pandemic: A Novel TVP-VAR frequency connectedness approach

Financ Res Lett. 2023 May:53:103634. doi: 10.1016/j.frl.2023.103634. Epub 2023 Jan 9.

Authors

Jionghao Huang¹, Baifan Chen², Yushi Xu³, Xiaohua Xia^{2

4}

Affiliations

¹ School of Economics, Peking University, Beijing 100871, China.
² School of Applied Economics, Renmin University of China, Beijing 100872, China.
³ School of Economics and Management, China University of Petroleum (Beijing), Beijing 102249, China.
⁴ Institute of China's Economic Reform and Development, Renmin University of China, Beijing 100872, China.

Abstract

This paper investigates the dynamic volatility spillover among energy commodities and financial markets in pre-and mid-COVID-19 periods by utilizing a novel TVP-VAR frequency connectedness approach and the QMLE-based realized volatility data. Our findings indicate that the volatility spillover is mainly driven by long-term components and prominently time-varying with a remarkable but short-lived surge during the COVID-19 outbreak. We further spot that WTI and NGS are prevailingly transmitting and being exposed to the system volatility simultaneously, especially during the global pandemic, suggesting the energy commodity market becoming more integrated with, more influential and meanwhile vulnerable to global financial markets.

Keywords: COVID-19 pandemic; Energy commodity market; Global financial market; TVP-VAR frequency connectedness; Volatility transmission dynamics.