Risk Transmission and Co-Movements Between Financial Markets and Commodity Markets in the COVID-19 Period

Abstract

This study examines risk transmission and co-movements between financial markets (G7 countries and China) and commodity markets (gold and oil) during the COVID-19 crisis. Daily closing prices for major equity indices (CAC40, CSI300, DAX30, FTSE100, MIB, NIKKEI, TSX and S&P500) and futures prices for gold, brent and WTI were analysed using DCC–MGARCH, VaR and CoVaR models. The results indicate that oil markets (WTI and brent) faced the highest risk exposure, underscoring their vulnerability to extreme economic shocks, while gold, despite some sensitivity, generally acted as a safe-haven asset. CoVaR analysis revealed significant systemic risk transmission, with gold amplifying risk for European indices (FTSE and CAC40) and energy markets showing even stronger spillovers, particularly with the CSI. At the 1% confidence level, Asian markets like CSI and Nikkei demonstrated the highest sensitivity to commodity price shocks, while S&P 500 exhibited the lowest, reflecting the diversification benefits of mature financial markets.