The Research Of Dynamic Linkage Between China’s Commodity Market And China’s Stock Market

After 2000,the commodity market has gradually shown a trend of financialization,and the correlation between the commodity market and the stock market has been strengthened.If the risk transmission between markets is strengthened,it will easily lead to financial crisis.Therefore,regulators need to clarify the linkage between commodity market and stock market to prevent systemic financial risks.With the development of China’s commodity futures,more investors pay attention to the connectedness between the commodity market and the stock market,and expect to build a portfolio for risk diversification.However,most of the existing literature focuses on foreign markets,so this study focuses on the dynamic linkage between China’s commodity market and stock market.Firstly,this paper establishes a VAR-GARCH-BEKK model to study the connectedness between China’s commodity market and stock markets on the whole.We find there is mean spillover from stock market to the overall commodity market and metal market while stock market suffers from the one-way mean spillover of energy market.However,there is no volatility spillover between the stock market and the above three commodity markets.What’s more,there is no mean spillover effect between the stock market and agricultural products market,and there is no mean spillover effect between the stock market and precious metal market,but there is oneway volatility spillover from the stock market to these two sub markets.Then,using local Gaussian correlation and the bootstrap test,we find that from2005 to 2021,the local Gaussian correlation coefficient between China’s commodity and the stock market has increased significantly,and the risk diversification ability of commodities has been weakened.And precious metals are mainly negatively or weakly positively correlated with the stock market,especially under extreme conditions Therefore,gold has good hedging ability.After that,the study shows that there is an obvious asymmetric contagion effect between China’s commodity market and stock market during the financial crisis of2007–2009,while there is a risk diversification between commodity market and stock market during China’s stock disaster in 2015.Bootstrap test shows that there is a risk contagion between China’s agricultural products and precious metals and stock markets during the period of COVID-19,but this result does not change the fact that precious metal has good hedging capability.At the same time,although COVID-19 does not cause risk contagion between commodity markets(including the overall commodity market,metal market and energy market)and stock market,however,the result shows that there is contagion of pure risk because that the linkage will be significantly improved during the bull period,while the linkage will be reduced in a bear period.