An application of a TVP-VAR extended joint connected approach to explore connectedness between WTI crude oil, gold, stock and cryptocurrencies during the COVID-19 health crisis

Abstract

We employ a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach to study interlinkages between four markets, namely the crude oil, gold, stock, and cryptocurrency markets, by characterizing the connectedness of these four markets, from January 1, 2018, to August 1, 2021. Our results demonstrate that health shocks appear to influence the system-wide dynamic connectedness, which reaches a peak during the COVID-19 pandemic. Net total directional connectedness suggests that the gold and stock markets consistently appear to be net receivers of spillover shocks. Crude oil appears to be a critical net transmitter of shocks for almost the whole pre-COVID-19 pandemic period, but it turns into an important net receiver during the COVID-19 pandemic. The cryptocurrency market acts as the time-varying net receiver and net transmitter of our network, and it has the most inconsiderable role within our studied network. Pairwise connectedness reveals that crude oil and stock are mostly receiving spillover effects from all the other markets, while gold could be either a net transmitter or a net receiver, depending on the types of market considered. Cryptocurrency is a volatile market, and its role varies constantly over time.