Commodity Volatility Indices and Select Asian Equity markets

Investigations on the relationship and spillover between equity and commodity markets are increasing as the price of one financial asset also considers the information or news about another financial asset. Furthermore, portfolio managers analyse the dependency structure of different assets to make better investment strategies. Studying the relationship between equity and commodity markets has vital inferences for investors. This study examines the relationship between the implied volatility of two major international commodity indices and select Asian equity markets. It analysed Nifty50, Nikkei 225, SSE, Oil VIX and Gold VIX. The data period starts from 1 January 2015 to 31 May 2020. The empirical results show the negative contemporaneous relation between the implied volatility of commodities and Nifty 50 and Nikkei 225 while no significant relation is found for SSE. Granger causality tests demonstrate bidirectional causality between the Gold VIX and countries equity indices. The application of the EGARCH model reveals the existence of asymmetric effect in the conditional volatility of Nifty 50 and Nikkei 225. Further, the inclusion of Oil VIX and Gold VIX in the variance equation does not accentuate volatility persistence but reduces the asymmetric and ARCH effect.