Gold; Crude oil; Spillovers; European equity sectors; Crises
This study examines the dynamic asymmetric return spillovers between gold and oil commodity futures and 22 European equity sectors using the Diebold and Yilmaz (2012) approach. The results show that gold and oil markets are the net recipients of return transmissions from the system, whereas the majority of equity sectors are the net transmitters of return spillovers in the system. Furthermore, negative spillovers are stronger than positive spillovers, suggesting asymmetry in return spillovers. Gold is the smallest recipient/transmitter of return spillovers from/to the system. The time-varying symmetric and asymmetric return spillover rises during the 2011–12 European debt crisis, 2014–15 oil crisis, 2016 Brexit referendum, and the COVID-19 crisis episodes, providing evidence of contagion. More interestingly, the COVID-19 crisis has had the biggest impact on positive and negative return transmission among the markets under study. The pairwise network connectedness analysis reveals the energy (basic resources) sector as the biggest transmitter of positive and negative return spillovers to the crude oil (gold) market. Finally, portfolio risk and downside-risk reduction analyses suggest an optimal weights-based strategy to minimize the risk for gold-stock and oil-stock-based portfolios during down markets. Overall, gold (oil) is considered to diversify the risk of all (few) European equity sectors during crisis and non-crisis periods.