Multiscale spillovers and connectedness between gold, copper, oil, wheat and currency markets

Abstract

This paper examines the time-frequency return and volatility spillovers between major commodity futures (copper, crude oil, gold, and wheat) and currency markets (British pound, Canadian dollar, Euro, Japanese yen, Swedish krona, and Swiss franc) using the methodologies by Diebold and Yılmaz (2012) and Baruník and Křehlík (2018). The results show that the spillover between markets under investigation is time-varying, asymmetric, and crisis-sensitive. Furthermore, short-term return spillovers dominate the intermediate- and long-term spillovers. In contrast, long-term volatility spillovers constitute the principal proportion of the total volatility spillovers. COVID-19 and GFC intensify more the long-term volatility spillovers than short- and medium-terms. Wheat is the better portfolio diversfier among the four commodities irrespective of the investment horizons. Liquidity shocks show a stronger impact on the return and volatility spillover strengths than the economic policy uncertainty and volatility index. The effect of liquidity shocks on return is a sizable increase in connectedness in the short-term than in both medium- and long-terms. Our findings have significant implications for currency investors and policymakers.