Volatility spillovers: A sparse multivariate GARCH approach with an application to commodity markets. Issue 5 (4th February 2022)

• Record Type: Journal Article
• Authors: Dhaene, Geert; Sercu, Piet; Wu, Jianbin
• Is Part Of: Journal of futures markets. Volume 42:Issue 5(2022)
• Page Start: 868
• Page End: 887
• Publication Date: 2022-02-04
• Subjects: commodity markets -- correlation spillovers -- multivariate GARCH -- penalized estimation -- price discovery -- regularization -- volatility spillovers; Commodity exchanges -- Periodicals; Foreign exchange futures -- Periodicals; 332.632
• DOI: 10.1002/fut.22312
• Languages: English
• ISSNs: 0270-7314

Abstract

Abstract: We propose sparse DCC‐GARCH and BEKK‐GARCH models based on L 1 ${L}_{1}$ regularization. We use the models to study daily return volatility and correlation spillovers for the 24 constituents of the Bloomberg commodity index in the period 2000–2018. The sparse models outperform the diagonal models out‐of‐sample in terms of model fit and other criteria. We also test whether the higher visibility of metals and energy markets compared with agricultural commodities affects the speed of information processing. We find correlation spillovers from metals and energy to agricultural commodities even though the latter tend to settle somewhat later.