Evaluating the hedging potential of energy, metals, and agricultural commodities for U.S. stocks post-COVID-19

This study employs TVP-VAR analysis to assess risk spillover effects between the U.S. stock ETF and commodity futures (energy, metals, grains, livestock, and soft) during the year surrounding the COVID-19 outbreak. Market connectedness intensifies rapidly after January 2020, with Brent crude oil and heating oil emerging as major net risk transmitters and Richard Bay coal as a primary receiver. While short-term interconnectedness shows sharp spikes with quick reversals, long-term interconnectedness exhibits modest but persistent elevation, necessitating horizon-specific hedging strategies. Our analysis reveals that livestock futures provide the most cost-effective hedge against the S&P 500 ETF, highlighting the potential of previously overlooked instruments. Energy futures demonstrate significant risk mitigation capabilities, reinforcing their established hedging role, while soft futures show notably enhanced hedging effectiveness. These patterns remain consistent across sector ETFs, with metals futures particularly effective for energy ETF hedging. The findings prove robust to alternative specifications, including the NASDAQ 100 ETF, extended analysis periods, different pandemic period definitions, and raw returns.