TY - JOUR
T1 - Risk spillovers and diversification between oil and non-ferrous metals during bear and bull market states
AU - Mensi, Walid
AU - Mobeen Ur Rehman
AU - Xuan Vinh Vo
N1 - Publisher Copyright:
© 2021 Elsevier Ltd
PY - 2021
Y1 - 2021
N2 - This paper examines the dependence structure, risk spillovers and conditional diversification benefits (CDBs) between oil and six non-ferrous metals futures markets (aluminum, copper, lead, nickel, tin, and zinc), using a variety of copula functions and Conditional Value at Risk (CoVaR) measure. The results show significant lower tail dependence and upper tail independence between oil and non-ferrous metals markets. The lower temporal dependence is positive and heterogeneous between oil and non-ferrous markets and intensified during the onset of the global financial crisis (GFC) for copper, lead, and tin markets. The upside and downside spillovers from oil to non-ferrous markets and vice versa is significant and increased during times of GFC, oil price crash, and COVID-19 outbreak. The highest spillover effects are observed for the aluminum market, which is very vulnerable to oil price instabilities. Moreover, the spillover effects are asymmetric for all markets. Finally, we find that the CDB for aluminum and nickel are quite similar, and for lead, tin and zinc are also closed the same. The CDB is higher for nickel regardless of the portfolio composition and the probability level. The diversification gains decrease during stress market periods. Our findings have important implications in terms of funds allocation and portfolio design.
AB - This paper examines the dependence structure, risk spillovers and conditional diversification benefits (CDBs) between oil and six non-ferrous metals futures markets (aluminum, copper, lead, nickel, tin, and zinc), using a variety of copula functions and Conditional Value at Risk (CoVaR) measure. The results show significant lower tail dependence and upper tail independence between oil and non-ferrous metals markets. The lower temporal dependence is positive and heterogeneous between oil and non-ferrous markets and intensified during the onset of the global financial crisis (GFC) for copper, lead, and tin markets. The upside and downside spillovers from oil to non-ferrous markets and vice versa is significant and increased during times of GFC, oil price crash, and COVID-19 outbreak. The highest spillover effects are observed for the aluminum market, which is very vulnerable to oil price instabilities. Moreover, the spillover effects are asymmetric for all markets. Finally, we find that the CDB for aluminum and nickel are quite similar, and for lead, tin and zinc are also closed the same. The CDB is higher for nickel regardless of the portfolio composition and the probability level. The diversification gains decrease during stress market periods. Our findings have important implications in terms of funds allocation and portfolio design.
KW - CoVaR
KW - Copula
KW - Diversification benefits
KW - Non-ferrous metals
KW - Oil
KW - Spillovers
UR - http://www.scopus.com/inward/record.url?scp=85105485429&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85105485429&partnerID=8YFLogxK
U2 - 10.1016/j.resourpol.2021.102132
DO - 10.1016/j.resourpol.2021.102132
M3 - Article
SN - 0301-4207
VL - 72
JO - Resources Policy
JF - Resources Policy
M1 - 102132
ER -