Khan Future Business Journal 2024, 10(1):22 Future Business Journal

[Link]

RESEARCH Open Access

Market volatility and crisis dynamics:

a comprehensive analysis of U.S., China, India,
and Pakistan stock markets with oil and gold
interconnections during COVID‑19 and Russia–
Ukraine war periods
Muhammad Niaz Khan1*   

Abstract
The objective of this paper is to explore the interconnectedness of volatility among the stock markets of U.S.,
China, India, and Pakistan in conjunction with oil and gold markets. Employing the novel Time-Varying Parameter
Vector Autoregression (TVP-VAR) model for assessing connectedness, the study scrutinizes key patterns
of dependency and interrelation between these markets. Furthermore, this study investigates the dynamic
connectedness during the global health crisis due to COVID-19 and the geopolitical crisis due to Russia–Ukraine
war periods to identify the changes in their relationship following the two crises episodes. The findings underscore
the significance of volatility transmissions emanating from the U.S., a developed market, in shaping these dynamic
linkages. It is observed that oil and gold returns play a limited role as sources of shocks for market returns in China,
India, and Pakistan, suggesting a relatively lower contribution of oil and gold to equity market volatility. The results
also emphasize the safe-haven characteristics of gold during periods of crisis such as the COVID-19 pandemic
and the Russia–Ukraine war. Moreover, the study indicates that the volatility transmissions during the COVID-19
pandemic are more pronounced compared to the Russia–Ukraine war crisis. These findings hold notable implications
for both investors and policymakers, emphasizing the need for a nuanced understanding of market dynamics
and the development of risk-averse strategies, particularly in times of crisis.
Keywords Volatility connectedness, COVID-19, Russia–Ukraine war, South Asia, China, U.S., Gold, Oil

Introduction 3.4%, in contrast to the 2.8% growth observed in 2019.

Following the Global Financial Crisis (GFC) in 2008, The global GDP, which stood at 84.9 trillion U.S. dollars,
the world confronted two subsequent major crises: the commenced recovery in 2021, reaching 96.3 trillion U.S.
COVID-19 pandemic and the Russia–Ukraine war crisis. dollars—a noteworthy gain of 11.4 trillion dollars [44]. As
These crises led to a global economic downturn, with the of November 23, 2023, the World Health Organization
year 2020 witnessing a contraction of the global GDP by (WHO) reported 772.2 million confirmed cases and
7 million fatalities worldwide. Notably, China, India,
and the United States are among the countries most
*Correspondence:
Muhammad Niaz Khan significantly affected by the pandemic [49]. According
niazkhanbannu@[Link] to the WHO [50], the cumulative reported cases in these
1
University of Science and Technology Bannu, Bannu, Khyber
countries are as follows: the U.S. has 103.4 million cases,
Pakhtunkhwa, Pakistan
China has 99.3 million cases, and India has 45 million

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Khan Future Business Journal 2024, 10(1):22 Page 2 of 15

confirmed cases, with the U.S. having the highest number interconnectedness among the stock markets of the U.S.,
among all countries worldwide. The major stock market China, India, and Pakistan, along with commodities
indices, namely the Dow Jones, Nasdaq, and S&P 500, futures in gold and oil. India and Pakistan, with their
experienced a significant decline of 37.1%, 30.1%, and significant market capitalization and the number of listed
31.9%, respectively. This resulted in a substantial decrease companies, serve as representative markets in the South
of US$ 10 trillion in market values, representing over Asian region. Additionally, China and India maintained
45.0% of the US GDP in 2019 [21].1 Several researchers strong trade ties until 2021, and China has close trade
have asserted that the pandemic had a more severe relations with Pakistan [52].
impact on the global economy compared to the GFC [12, Due to globalization and the integration of global
23]. markets, the examination of interconnectedness
As the world was recovering from the global health among international financial markets has garnered
crisis, the Russia–Ukraine war commenced on February significant attention from researchers and investors.
24, 2022. Russia and Ukraine stand as major exporters of The anticipation of risk transmissions among global
energy, fertilizers, food grains, and certain metals [48]. markets and their impact on financial and commodity
Resulting from the conflict, energy prices surged fourfold markets in various nations is well-documented.
in March 2022 compared to April 2020. Fertilizer prices Dominant commodity markets, such as oil and gold,
experienced a 220% increase, and food prices rose by 84% receive special attention due to their influence on stock
during the same period. These heightened prices had markets, especially during periods of turmoil. Stock
substantial economic repercussions, posing threats to markets act as representatives of economic systems,
food security and contributing to inflation in numerous and disturbances in the financial system directly affect
countries [48]. the global economic system [53]. South Asian countries
In recent times, market integration has emerged as import oil and gold commodities, and any potential
a highly significant subject among both researchers issues in these markets will impact stock markets in
and market participants. With a higher degree of the region. Given the increased financialization of oil
interconnectedness, a shock in one market spills over and gold in international markets, these commodities
to others, disrupting their returns and volatility. The now exert a more pronounced influence on the region’s
spill overs of shocks and volatility carry substantial stock markets. Therefore, investigating the impact of
implications for asset allocation, investment global and regional commodity and stock markets on
diversification, and risk management. Turbulent events South Asian markets is crucial, particularly in terms of
not only impact the country of origin but also extend their connectedness with key financial and commodities
beyond national borders due to increased market markets. In recent decades, global markets have
integration. The examination of connectedness in experienced increased integration due to various crisis
diverse markets holds vital implications for investors episodes. Furthermore, advancements in information
and policymakers. Existing literature underscores that technology and market developments have expanded
a heightened degree of volatility connectedness among opportunities for international investors to diversify
markets indicates greater integration. The literature across national boundaries.
also emphasizes that the level of integration among The present study contributes significantly to the exist-
markets holds crucial implications for investors seeking ing literature in several ways. While numerous studies
to diversify their investments globally. With increased have explored the relationships among financial asset
integration, the benefits derived from diversification volatilities during different crisis episodes, there has been
diminish [4, 22]. limited research on how South Asian markets, global
The exploration of market interconnectedness suggests developed and emerging markets, and commodities mar-
that investors seek alternative investments where kets respond to such crisis periods. To address this gap,
uncertainty is lower. Recent literature indicates that the current study pioneers the inclusion of global factors
commodities futures, particularly gold and oil, serve as a in examining risk transmission among major South Asian
hedge against risks stemming from systemic factors [3, 5, markets. With the increasing influence of developed
33, 37]. markets on South Asian emerging markets [52], and the
The current study aims to investigate the impact of ongoing trend of globalization expected to amplify global
COVID-19 and the Russia–Ukraine war on the volatility stock market linkages and potential spill over effects, it
is crucial to investigate whether South Asian markets
are impacted by these global factors. The research find-
1
As per Elgammal et al. [18], the U.S. stock market experienced a decline ings will provide a comparative analysis of these financial
of 28% from February 19 to March 31, 2020, while other significant stock
markets saw declines ranging from 10 to 30%.
Khan Future Business Journal 2024, 10(1):22 Page 3 of 15

assets during pandemic and geopolitical crises, thereby studies suggest that the issue of whether economic
contributing to the literature. uncertainty persists due to increased volatility spillovers
Moreover, previous studies have predominantly remains unclear. This paper seeks to enhance the exist-
focused on single crises, as seen in works such as [6, 17, ing literature by examining two major crisis episodes
26, 27, 31, 46]. In contrast, the current study seeks to fill and analyzing more recent data related to the COVID-19
a research gap by concurrently investigating the COVID- pandemic and the Russia–Ukraine conflict.
19 health crisis and the geopolitical crisis arising from In addition, with the development and innovations in
the Russia–Ukraine conflict. This dual examination of the commodities markets, a viable investment strategy
various financial assets during these two crises periods for portfolio diversification is to combine financial
aims to assist investors in formulating effective risk assets with commodities futures for risk minimization
management strategies and optimizing their investment purposes. Numerous existing studies investigated the
portfolios. In addition, this study provides an updated safe haven and hedging properties of various assets
analysis spanning over a period of more than six months, in financial and commodity markets. Reboredo [38]
employing the Russia–Ukraine conflict. Previous studies confirmed the safe haven characteristics for gold against
concentrated on connectedness for a very short duration, crude oil. Basher and Sadorsky [5] found that both gold
specifically less than one month [1, 46]. Therefore, this and oil were best assets to hedge emerging markets stock
study enhances the existing body of research by providing prices. These findings were supported by Shahzad et al.
empirical evidence on how the dynamics of return spill [41] who found negative association between oil and
overs for various assets were altered by the COVID-19 gold during the GFC. Morema and Bonga [34] confirmed
and Russia–Ukraine war crises. the presence of volatility spill overs between the stock
The paper is organized as follows: Sect. "Literature market and the two investigated commodities of oil and
review" provides an overview of relevant literature on gold. Regarding portfolio optimization and developing
COVID-19 and the Russia–Ukraine war. Sect. "Data and potential hedging approaches, their research concluded
methodology" outlines the data and methodology used that the most effective strategy for hedging against
in the paper. Sect. "Empirical results and discussions" stock-related risks, especially during a crisis, involved
reports the empirical results and discussions. Finally, combining investments in gold and stocks. Dutta et al.
Sect. "Conclusion" offers a brief conclusion. [16] scrutinized the dynamic correlations among climate
bonds, the S&P 500, crude oil, and gold. They utilized
Literature review the VAR-ADCC-GARCH model to explore these
In recent decades, global financial markets have relationships and assess hedging strategies, particularly
experienced several crisis episodes, prompting during the COVID-19 pandemic. Key findings from their
researchers to delve into the repercussions of these crises research revealed that climate bonds exhibit a positive
on both regional and international financial markets. The (negative) correlation with gold (U.S. equities) and no
GFC heightened risk transmissions among markets, and correlation with crude oil. Volatility connections among
subsequently, the emergence of the COVID-19 pandemic these assets were bidirectional, with minimal return
further intensified this interconnectedness. Originating linkages. Notably, the hedge ratio was positive for bond-
in Wuhan, China, the virus swiftly spread globally, gold pairings but fluctuated for bond-stock and bond-oil
leading researchers to investigate its impact on stock during the pandemic, and climate bonds were effective
market connectedness and volatility spill overs. in reducing risk when combined with U.S. equities
The existing literature examining the impact of or gold in a hedging strategy. However, their hedging
COVID-19 on financial markets suggests that the pan- effectiveness decreased during the pandemic.
demic adversely affected global equity market returns, Mensi et al. [31] conducted an analysis focusing on
leading to negative sentiments among investors [11]. the interconnection of volatility between gold, oil, and
Fang and Shao [20] emphasized heightened volatility in sectoral stock indices in the Chinese market. They
agriculture, metal, and energy markets due to the Rus- employed the Diebold and Yilmaz [14, 15] approach in
sia–Ukraine conflict. Previous studies have indicated an their investigation, covering turbulent periods such as the
increase in volatility among major financial assets owing GFC, the European debt crisis, the oil price downturn,
to economic uncertainty [2, 8]. In contrast, Bouri [9] and the initial stages of the COVID-19 pandemic. The
argued that no spillovers were found in any direction in findings suggested that these crisis periods amplified
the Lebanon market in the pre- and post-global financial the transmission of asymmetric spill overs among the
crisis period. Additionally, Saleem et al. [40] contended markets. The study also argued that integrating gold and
that Islamic stock indices exhibited stability during the oil futures into an equity portfolio offered diversification
initial wave of the pandemic. The findings from these advantages.
Khan Future Business Journal 2024, 10(1):22 Page 4 of 15

Conversely, Corbet et al. [13] argued that neither gold, to being a net recipient, while the oil market assumed the
nor bitcoins had any significant relationship with stock role of a net source for return and volatility spill overs.
prices in Chinese market during the COVID-19 pandem- The results of Shahzad et al. [42] support these findings,
ics. These findings are supported by Khan et al. [27] who indicating that oil acted as a net transmitter, while gold
investigated the market volatility of Bitcoin, exchange acted as a net receiver of volatility shocks during the
rates, the U.S. stock market index, gold, oil, and sugar Russia–Ukraine conflict. Using 5-min interval data from
prices during the COVID-19 pandemic by applying April 2006 to April 2019, Bouri et al. [10] applied the
GARCH family models to daily return data from Novem- TVP-VAR model to their analysis, revealing indications of
ber 27, 2018, to June 15, 2021. The study revealed high transmission encompassing realized higher moments and
volatility persistence in all financial assets during the jumps among crude oil, gold, and the U.S. stock markets.
pandemic. However, the study found no evidence sup- Wang and Li [47], utilized the DCC-MIDAS and spill
porting the safe-haven nature of oil or gold markets dur- over index models, determined that adverse volatility spill
ing the pandemic. overs had a substantial impact on the Chinese financial
From the existing literature, the evidence of safe haven markets. Their research also emphasized the prevalence
property of some assets during the turmoil periods is of long-term volatility linkages among the Chinese
mixed. The current study will fill this gap in the literature financial market, oil, and gold markets, overshadowing
by investigating the interrelationship between stock, gold their short-term counterparts. Interestingly, gold
and oil markets. According to Elgammal et al. [18], the emerged as a short-term hedge asset. Zhu et al. [54]
safe haven property is sensible to the choice of markets, illustrated an increase in two-way risk spill overs between
hence the current study focused on U.S., Chinese, Indian oil and both the U.S. and Chinese stock markets during
and Pakistani markets over the more recent health crisis the COVID-19 pandemic crisis.
and geopolitical crisis periods. In a separate avenue of research, a group of scholars
Most of the existing studies have individually examined the relationships between oil and gold
investigated the impacts of COVID-19 and the Russia– markets, sustainable and Islamic indices. The rationale
Ukraine conflict. Moreover, these studies have explored for incorporating sustainable and Islamic indices lay
various geographically diverse markets with a focus in their perceived stability compared to conventional
on different financial assets. Examples of such studies counterparts. Maraqa and Bein [30] conducted a
include those conducted by Basuony et al. [6], Duttilo comprehensive analysis of the evolving interconnections
et al. [17], Fakhfekh et al. [19], Pinho and Maldonado and volatility transmission among sustainable stock
[37] and Yousef [51]. For instance, Pinho and Maldonado indices, crude oil prices, and prominent European
[37] analyzed daily data encompassing five commodities stock markets, including both oil-importing and oil-
(corn, crude oil, copper, gold, and soybeans) and two exporting countries.2 Their findings revealed distinct
global equity indices (MSCI emerging and MSCI interrelationships between sustainability indices and
developed markets indices). The findings suggested that the stock markets of oil-importing and oil-exporting
equity markets played a role as net contributors to shocks countries. Notably, stocks of oil-importing countries
and volatility observed in commodity markets, while the exhibited a stronger connection to sustainability
impact of commodity markets on equity markets was indices, while oil-exporting countries displayed a more
generally less pronounced. In a related study, Mensi et al. pronounced linkage to oil prices. Setiawan et al. [39]
[32] utilized daily closing prices for the U.S. and Chinese conducted a comprehensive investigation encompassing
stock markets, along with oil and gold futures, spanning various asset classes, such as Islamic, conventional, ESG,
from January 2019 to May 2020. Results indicated that, commodities, bonds, and Bitcoins, during the COVID-
during low-volatility periods, gold and stock markets 19 pandemic. Their study revealed that different assets
acted as net transmitters of spillovers but became net exhibited diverse responses to market information
receivers during high-volatility regimes. Conversely, and economic conditions. Specifically, they found a
oil was identified as the primary receiver of spillovers negative impact of the pandemic on certain assets,
during low-volatility periods and switched to being a net including stock prices in Indonesia and the United
transmitter during high-volatility regimes. Additionally, Kingdom, ESG investments, 10-year U.S. bonds, and
the study demonstrated that the COVID-19 pandemic Bitcoins. In contrast, a positive impact was observed
intensified spillovers from commodities to equity for Malaysia, the U.S. stock markets, and gold. In a
markets. recent investigation, Hanif et al. [25] investigated the
Similarly, Liao et al. [29] found that the most significant
return and risk transmission occurred during the 2
The set of primary oil-importing nations included the UK, Germany,
COVID-19 crisis. In this period, the gold market shifted France, Italy, Switzerland, and The Netherlands, while the grouping of oil-
exporting countries comprised Norway and Russia.
Khan Future Business Journal 2024, 10(1):22 Page 5 of 15

interrelationships between green stock indices and from other assets, while European equities and Russian
oil prices. They employed wavelet coherence and the bonds were recognized as net transmitters of volatility
frequency-connectedness techniques outlined by during the sample period.
Diebold and Yilmaz [14, 15] in their analysis. They found Alam et al. [1] employed a short one-month period
that on mid- and long-term scales, the connections during the Russia–Ukraine conflict to examine
between oil and green stocks strengthened, with lead- how the Russian invasion affected the dynamic
lag patterns displaying a mixed and time-varying interconnectedness of five commodities, the G-7
nature. The transmission of risk spill overs between markets, and BRIC stock markets. They utilized the TVP-
the oil and green stocks predominantly unfolded over VAR technique to capture how spillovers were formed
time. Notably, the oil market emerged as a significant during distinct crisis periods. Their results showed that
source of risk spill overs into the green stock market. during the invasion crisis, the stock markets of the U.S.,
Furthermore, the study underscored those global crises Canada, China, and Brazil, as well as gold and silver
such as the Great Recession, the oil price crisis, and (commodities), were recipients of shocks from other
the COVID-19 pandemic substantially magnified the commodities and markets.
magnitude of risk spill overs between these markets. The study of Beraich et al. [7] investigated the influence
Examining the influence of global oil price volatility on of COVID-19 and the Russia–Ukraine war on the
the interconnectedness of GCC stock markets, Hussain transmission of risk between the U.S., European, and
and Rehman [26] conducted a study covering both pre- Chinese stock markets using daily data from June 1, 2019
and post-COVID-19 periods. Their results revealed to June 1, 2022. They found that volatility transmissions
that the volatility connectedness of GCC stock markets increased during the war period but were less
exhibited temporal variations. The study emphasized pronounced compared to the volatility spill overs during
the interconnectedness between stock markets and the COVID-19 pandemic. Furthermore, they argued that
oil returns during the investigated period, showcasing the level of dependence and spill over effects varied over
heightened volatility within individual markets and spill time between the markets during the crisis periods.
overs from other markets, including volatility spill overs Ha [24] explored the volatility indices of oil, gold,
from oil markets. These findings suggested an increased and stocks from January 1, 2018 to April 8, 2022,
volatility interconnection among the markets during the investigating the connectedness in volatility among the
tumultuous global health crisis. three markets throughout the entire sample period and
A more recent aspect of the literature has focused specifically during the Russia–Ukraine war.3 Employing
on the geopolitical crisis between the neighbouring the TVP-VAR approach for analysis, the findings
countries of Russia and Ukraine, initiated by the Russian revealed a noteworthy impact of the war on the dynamic
invasion of Ukraine on February 24, 2022. Given Russia’s connectedness among the observed markets. This
significant role as an oil exporter, the crisis has the suggests that the linkages in volatility indices between oil,
potential to impact global oil prices. While oil prices gold, and stock markets increased due to the crisis of the
reached a record low during the COVID-19 pandemic, war.
they surged in the war period due to supply shocks The existing literature emphasizes that periods of cri-
caused by the conflict. Analysing this geopolitical crisis sis tend to enhance volatility connections across both
is crucial for understanding its effects on stock and financial and commodities markets, a factor with signifi-
commodities markets in comparison to the health crisis cant implications for policymakers and investors seek-
of COVID-19. ing diversified portfolios spanning various markets and
Most of the studies investigating the impact of the war asset classes [43]. Furthermore, the present study aims
crisis have tended to focus on this event individually, to make a contribution to the literature by examining the
utilizing data for a relatively short period of only a few impact of both the COVID-19 pandemic and the Rus-
months. For instance, Umar et al. [46] conducted an sia–Ukraine crisis on the interconnectedness of volatility
analysis of the impact of the Russian-Ukrainian conflict in major developed and emerging stock markets, as well
on Russian, European, and U.S. equities and bonds, along as globally significant commodities such as oil and gold.
with major commodities exported by Russia, such as oil, This study is focused on the U.S., China, India, and Paki-
natural gas, and wheat. They used data from January 2021 stani stock markets, along with crude oil and gold prices,
to March 2022, covering the one-month period of the addressing a notable gap in the existing literature.
invasion. In addition to gold as a safe-haven asset, they
also included bitcoin in their investigation. Their findings 3
The study employed (VOL-OVX), (VOL-GVX), and (VOL-VIX) to assess
revealed a time-varying relationship among the markets. the volatility of future contract prices for crude oil over the next 30 days, the
Gold was identified as a net receiver of volatility shocks COMEX gold volatility index, and the CBOE volatility index for U.S. stock
indices, respectively.
Khan Future Business Journal 2024, 10(1):22 Page 6 of 15

 
The current research contributes to the literature in Pt
four significant aspects. Firstly, it examines the impact Rt = Ln (1)
Pt−1
of two critical crisis periods on the interconnectedness
of stock markets. Secondly, the study employs more Here, Rt signifies the returns at the close of day t, Pt
recent data to investigate global and regional financial denotes the current price level of the financial asset at the
markets. Unlike previous studies, which often used end of day t, Pt−1 corresponds to the price level of the
relatively short time spans, this approach is designed asset on the preceding day, and Ln signifies the natural
to capture the comprehensive impact of the COVID- logarithm.
19 pandemic and the Russia–Ukraine war on financial This research investigates the dynamic interactions in
markets. Additionally, in response to the call from volatility among the stock markets of the U.S., China,
Setiawan et al. [39] to broaden investigations to India, and Pakistan, along with gold and oil futures. To
encompass various simultaneous crisis periods, this tackle the inherent challenge of selecting rolling window
study utilizes a more extended dataset spanning from sizes arbitrarily, the study employs the Time-Varying
January 2018 to October 2023. Thirdly, beyond stock Parameter Vector Autoregression (TVP-VAR) model,
markets, the research includes the examination of two as formulated by Antonakakis et al. [2] and grounded
pivotal commodities, namely oil and gold. Lastly, markets in the framework developed by Diebold and Yilmaz [14,
from diverse geographical proximities, including the 15]. This approach overcomes the potential pitfalls of
under-investigated markets of the South Asian region, erratic or overly smoothed parameters associated with
are considered in conjunction with the U.S. and Chinese traditional methods, ensuring a more robust analysis
markets to comprehend the potential impact of the major without the risk of discarding valuable observations. The
crisis periods. TVP-VAR model with a lag of one, chosen based on the
Bayesian Information Criterion (BIC), is expressed as
Data and methodology follows:
This study investigates the global and regional
ramifications of the COVID-19 pandemic and the
yt = βt yt−1 + εt εt ∼ N (0, �t ) (2)
Russia–Ukraine war crisis on volatility spill over effects
within the stock markets of the Standard and Poor’s 500 vec(βt ) = vec(βt−1 ) + vt. vt ∼ N (0, Rt ) (3)
(S&P 500) in the U.S., the Shanghai Stock Exchange (SSE)
where yt , yt−1 and εt are vectors of N ×1 dimension
in China, the Bombay Stock Exchange (BSE) in India
endogenous variables, with a time varying variance–
(BSE-500), and the Karachi Stock Exchange (KSE) in
covariance matrix N×N ,t ; βt is the N ×N matrix of VAR
Pakistan. Commodity markets are represented by oil and
coefficients;vt is an N 2× 1, intercept vector with N 2×
gold future prices, and the data has been sourced from
N 2 dimension of the time-varying variance–covariance
[Link]. The analysis employs daily data, spanning
matrix, Rt , vec(βt ) is a vectorization ofβt.
from January 1, 2018 to October 13, 2023, encompassing
The stationary TVP-VAR model of order p can be
the periods of the COVID-19 pandemic and the Russia–
expressed as follows:
Ukraine war.4
To fulfill the study’s objectives, specific cut-off dates p
 ∞

are implemented: March 11, 2020, marking the World yt = �i yt−1 + εt, = Ai εt−1 (4)
Health Organization’s declaration of COVID-19 as a i=1 i=0
global pandemic, and February 24, 2022, denoting the In Eq. (4), we have a vector of n endogenous variables
commencement of the Russian invasion in Ukraine. This 
represented as yt = y1t , y2t, . . . . . . ..ynt , i represents
division results in three distinct sub-periods: pre-COVID n × n matrix of parameters, and εt˷n (0, Ʃ) is a vector
(January 1, 2018 to March 11, 2020), COVID-19 period of error disturbances assumed to be independently and
(March 11, 2020 to February 23, 2022), and Russia– identically distributed over time. The dynamic aspect
Ukraine war period (February 24, 2022 to October 13, of Eq. (4) is crucial, and it can be expressed as a mov-
2023). For analytical purposes, the price series of all 
ing average representation: yt = ∞ i=0 i t−1 where
A ε
variables are transformed into returns using the following K × K coefficient matrices Ai are recursively defined as
formula: Ai = 1 Ai−1 + 2 Ai−2 + · · · · · · · · · + N Ai−N , with Ai
being a K × K identity matrix and Ai = 0 for i < 0.
The fundamental idea behind time-varying coefficients
in the vector moving average (VMA) model can be used
4
For initial data analysis, EViews-12 software was employed, while R Studio
to compute Generalized Impulse Response Functions
was utilized for the analysis of the TVP-VAR model. (GIRF) and Generalized Forecast Error Variance
Khan Future Business Journal 2024, 10(1):22 Page 7 of 15

Decompositions (GFEVD), as described by Koop et al. markets, with the exception of the Indian market, which
[28] and Pesaran and Shin [36]. This approach ensures the failed to generate any value for investors. This implies
robustness of results, irrespective of variable ordering. In that throughout the entire sample period, investors
line with this methodology, the equation for the H-step gained from the stock and commodities markets, except
ahead forecast error variance decomposition is expressed in the case of the Indian market, where a substantial
as follows: portion of investors’ wealth was depleted over the
  ′  2 investigated period. The Chinese market emerged as the
σjj−1 h−1
h=o ei Ah ej ∅ij (h)
øij (h) = h−1   ′  , ø̃ij (h) = N best-performing market, followed by returns from the
′
h=o ei Ah Ah ej j=1 ∅ij (h) gold and oil markets. In terms of volatility, all markets
exhibited a high degree of volatility, as measured by
(5)
standard deviations. The heightened volatility across
The GFEVD, as defined by Diebold and Yilmaz [14], all stock and commodities markets can be attributed to
represent the variance of variable i explained by variable j, the health and geopolitical crises during the period, with
øij (h), at forecasting step H. Its normalized version, ø̃ij (h), overall volatility reaching its peak during the COVID-
can be computed using Eq. (3). Here ei represents a zero 19 period compared to the Russia–Ukraine war period.
vector with a unity value at
 the ith position, ensuring that Specifically, the Chinese market demonstrated the
n n

ø
j=1 ij (h) equals1, and ij (h) is also equal to 1.
j,i=1 ø highest volatility, followed by the oil and gold markets.
The total connectedness index (TCI) is constructed These findings align with expectations, given that the two
using the GFEVD and is calculated by using the following crises had the most significant impact on the Chinese and
equation; commodities markets. Generally, the standard deviation
n
∅˜ ij (h)
n
∅˜ ij (h) indicates that volatility remained elevated during the
i,j=1. i =j i,j=1. i =j
TC(h) = n × 100 = × 100 (6) COVID-19 period when compared to the sub-period of
i,j=1 ø̃ij (h) n
the Russian-Ukrainian war.
Equation (6) provides a measure of the contribution All markets exhibited negative skewness over the
of volatility spill overs from stock, gold, and oil future entire sample period, implying fatter or longer tails of
returns to the overall forecast error variance. A higher the distribution on the left side compared to the right
value of this indicator signifies a highly interconnected side. The kurtosis values were all positive and greater
network with elevated market risk, where shocks to one than three, characteristic of a leptokurtic distribution,
variable impact others. Conversely, a lower value suggests deviating from a normal distribution. The Jarque–Bera
relative independence among variables, indicating that (J–B) statistics reveal that all return series deviate from
shocks to one variable do not prompt adjustments in conformity to normal distributions, indicating fat tails
other variables, implying lower market risk. In simpler and sharp peaks.
terms, it denotes the average spill over from all other Surprisingly, the lowest average returns were reported
markets to a specific asset, excluding the asset’s own during the pre-COVID-19 period in the sub-period
influence due to lags. Consequently, our initial focus is on analysis. Throughout the sub-periods, the gold market
how variable i transmits its effects to all other variables displayed a higher degree of volatility, reaching its peak
j, representing the total directional connections to other during the pandemic period. Skewness and kurtosis
markets: values indicated fat tails and non-normal distributions
n n during the sub-periods, as confirmed by the J-B statistics.
∅˜ ij (h) ∅˜ ij (h)
DCi→j (h) = n
i,j=1,i =j
× 100 =
i,j=1,i =j
× 100 (7) In Table 2, the correlation matrix is presented for both
i,j=1 ø̃ij (h) n
the entire sample period and the three sub-periods.
Secondly, we calculate total directional connectedness Throughout the entire sample period, the most pro-
from others: nounced static correlation was observed between the
n n U.S. and Indian markets. Notably, interactions between
˜ ˜
i,j=1,i=j ∅ij (h) i,j=1,i=j ∅ij (h) oil and stock markets intensified during the Russia–
DCj→i (h) = n × 100 = × 100 (8)
i,j=1 ø̃ij (h) n
Ukraine war period. In the context of the pandemic epi-
sode, the Chinese market demonstrated a heightened
association with other markets. Interestingly, gold exhib-
Empirical results and discussions ited a weaker association with equity markets during the
Table 1 provides an overview of the descriptive statistics pandemic period. The correlation coefficient between
for both the entire sample period and the three sub- gold and the U.S. market was found to be significant at a
periods. According to the statistics, positive average 5% level. Generally, static correlations among the markets
returns are observed in both the stock and commodities
Khan Future Business Journal 2024, 10(1):22 Page 8 of 15

Table 1 Summary Statistics for the whole sample period and the three sub-periods
BSE Gold KSE S&P 500 Oil SSE

Entire sample period

Mean − 0.005 0.043 0.025 0.013 0.035 0.063
S.D 1.069 1.107 0.935 1.104 1.298 3.187
Skew − 0.618 − 1.830 − 0.188 − 0.474 − 0.799 0.049
Kurt 8.409 26.56 7.774 8.079 17.21 28.30
J-B 1926.4 35,575.1 1435.3 1670.9 12,795.4 40,073.0
N 1502 1502 1502 1502 1502 1502
Pre-covid period
Mean − 0.016 0.041 − 0.014 − 0.098 0.012 − 0.019
S.D 0.869 0.733 1.122 2.404 1.072 1.211
Skew − 0.095 − 0.191 0.095 − 2.809 − 0.979 − 0.841
Kurt 7.673 7.918 3.799 38.04 11.55 8.903
J-B 519.5 577.9 16.00 29,912.2 1829.4 894.6
N 570 570 570 570 570 570
COVID-19 period
Mean 0.109 0.313 0.029 0.085 0.038 0.031
S.D 1.472 4.172 1.136 1.549 1.184 0.988
Skew − 2.266 0.670 − 0.308 − 1.026 − 1.293 − 0.060
Kurt 23.94 22.94 7.728 20.81 11.76 6.338
J-B 9677.4 8466.3 479.48 6782.1 1757.9 235.2
N 506 506 506 506 506 506
Russia–Ukraine war period
Mean 0.041 − 0.018 − 0.002 0.006 0.020 − 0.029
S.D 0.853 2.711 0.914 1.249 0.977 0.953
Skew − 0.702 − 0.499 0.138 − 0.114 0.116 − 0.663
Kurt 7.066 4.623 3.889 4.415 7.954 7.046
J-B 328.60 64.44 15.38 36.45 436.6 321.8
N 426 426 426 426 426 426
BSE, returns for the Bombay Stock Exchange; Gold, gold futures; Oil, crude oil futures; S&P 500, standard & Poors 500 returns; KSE, Karachi Stock Exchange; SSEC
Shanghai Stock Exchange Composite Index, Jarque- Bera (J-B) test is used for checking the normality of the distributions

remained relatively low, justifying the use of dynamic markets during the full sample period, as well as the sub-
connectedness measures for analysis. periods. This underscores their pivotal roles in propagat-
Table 3 provides an overview of volatility ing shocks to other markets, supporting the notion that
connectedness for the entire period, as well as during the the U.S. market has a dominant role in influencing global
pre-COVID-19 period (Panel A), the COVID-19 period market shocks.
(Panel B), and the Russia–Ukraine war period (Panel C). Conversely, the Pakistani market and the gold market
This table sheds light on the interdependence of volatility contribute the fewest shocks to other markets, followed
among the examined markets. by the Chinese market. The Pakistani market contributes
The results depicted in Table 3 demonstrate that a mere 7.75%, and the gold market contributes 10.38% to
the total connectedness for the entire sample stands the transmission of volatility to other markets. In con-
at 16.28%. This percentage signifies that 16.28% of the trast, volatility spill over returns from the Pakistani mar-
total variance in forecast errors for the six variables can ket and the gold market are responsible for 89.82% and
be attributed to spill over shocks across the two com- 89.68% of their respective volatilities. These findings
modity and four stock markets. These findings suggest suggest that the gold and Pakistani markets could serve
a significant interlinking of markets in terms of risk as alternative investment options due to their relatively
transmissions. Notably, the S&P 500 and oil markets weak associations with equity markets in general.
play substantial roles in this interconnectedness, con- The results for the sub-periods highlight volatility con-
tributing 33.94% and 16.83%, respectively. The US., mar- nectedness before the COVID-19 period, during COVID-
ket emerged as net transmitter of volatility to the other 19, and during the Russia–Ukraine war periods. Total
Khan Future Business Journal 2024, 10(1):22 Page 9 of 15

Table 2 Correlation Matrix for the Whole sample period and the three sub-periods
BSE Gold KSE S&P 500 Oil SSE

BSE 1.000
GOLD 0.008 1.000
KSE 0.169* 0.011 1.000
S&P 500 0.286* 0.083* 0.059** 1.000
OIL 0.112* 0.112* 0.108* 0.249* 1.000
SSE 0.254* 0.102* 0.127* 0.147* 0.147* 1.000
Pre-COVID period
BSE 1.000
GOLD 0.029 1.000
KSE 0.098** − 0.032 1.000
S&P 500 0.222* 0.037 0.132* 1.000
Oil 0.189* − 0.128* 0.063 0.439* 1.000
SSE 0.238* 0.062 0.174* 0.250* 0.177* 1.000
During COVID period
BSE 1.000
GOLD 0.001 1.000
KSE 0.240* 0.036 1.000
S&P 500 0.083*** 0.097** 0.182* 1.000
OIL 0.377* 0.165 0.055 0.219* 1.000
SSE 0.321* 0.117* 0.117* 0.080*** 0.194* 1.000
Russia–Ukraine war period
BSE 1.000
Gold 0.016 1.000
KSE 0.081 0.025 1.000
S&P 500 0.065 0.217* − 0.079 1.000
Oil 0.212* 0.115 ** 0.074 0.116* 1.000
SSE 0.189* 0.154* 0.039 0.147* 0.048 1.000
(*), (**), and (***) indicate significance at 1%, 5% and 10%, respectively

connectedness among the markets remained low before Volatility transmissions during the Russia–Ukraine
the COVID-19 period, amounting to 13.83% compared war period are highlighted in Panel (C) of Table 3. Com-
to 20.08% and 14.81% during the COVID-19 and Russia– pared to the COVID-19 period, the war period caused
Ukraine war periods, respectively. During the COVID-19 fewer volatility shocks among the markets, as evident
period, the Indian and U.S. markets significantly contrib- from the total volatility connectedness of 14.81%, which
uted to volatility connections, accounting for 34.57% and is slightly higher than the period before the COVID-19
28.90%, respectively. This implies that these two markets pandemics. During this period, the U.S. and gold mar-
were net contributors of shock transmissions to the sys- kets significantly affected the transmissions of volatility
tem, aligning with the findings of Zeng et al. [52], who shocks to other markets. Volatility transmissions from
found more shock spill overs from U.S. markets to other oil markets increased during the war period compared to
markets. On the other hand, gold and oil markets con- the COVID-19 period. These findings are in agreement
tributed the fewest shocks to other markets during the with Beraich et al. [7] who argued that COVID-19, being
pandemic period. These findings are supported by Pinho a global pandemic, caused greater volatility transmissions
and Maldonado [37] and Mensi et al. [31], who found than the Russia–Ukraine war crisis.
that gold and oil futures were more independent dur- Figure 1 displays the Total Connectivity Index (TCI) for
ing the pandemic period. This implies that oil and gold the markets across the entire period and the three sub-
futures can be used as hedges against risk due to the cri- periods. Noticeable peaks are evident around the peak
sis. These findings, however contradicts with the findings time of the global pandemic in March and April 2020. The
of O’Donnell et al. [35] who found that gold failed to pro- magnitude reached its zenith, reaching approximately
tect investment during the pandemic. 60% during the pandemic period. Volatility remained
Khan Future Business Journal 2024, 10(1):22 Page 10 of 15

Table 3 Volatility connectedness

Whole sample From-(j)
period
To-(i) BSE Gold KSE Oil S&P500 SSE From

BSE 77.84 1.61 1.96 2.56 12.57 3.46 22.16

Gold 1.12 89.68 1.02 2.58 3.44 2.17 10.32
KSE 2.66 0.70 89.82 2.31 2.55 1.96 10.18
Oil 1.91 2.32 2.01 83.75 7.08 2.93 16.25
S&P 500 6.12 3.43 1.10 6.47 79.95 2.94 20.05
SSE 3.51 2.31 1.67 2.92 8.30 81.29 18.71
To 15.32 10.38 7.75 16.83 33.94 13.45 97.68
[Link] 93.16 100.05 97.57 100.58 113.89 94.74 16.28%
NET − 6.84 0.05 − 2.43 0.58 13.89 − 5.26 –
Panel (A) Pre-COVID-19 period
BSE 87.23 1.85 1.05 1.33 5.83 2.69 12.77
Gold 1.02 91.99 1.08 2.10 2.66 1.16 8.01
KSE 0.75 0.93 94.13 0.84 1.73 1.61 5.87
Oil 0.70 1.84 1.40 83.06 9.31 3.69 16.94
S&P 500 1.96 4.60 0.95 8.56 81.93 2.00 18.07
SSE 2.31 1.69 1.28 4.09 11.82 78.81 21.19
To 6.74 10.91 5.76 16.93 31.34 11.16 82.84
[Link] 93.97 102.90 99.89 99.99 113.27 89.97 13.83%
NET − 6.03 2.90 − 0.11 − 0.01 13.27 − 10.03 –
Panel (B) COVID-19 period
BSE 68.92 1.80 6.11 3.05 13.52 6.60 31.08
Gold 1.21 91.49 1.97 0.72 3.27 1.35 8.51
KSE 7.44 0.66 84.00 3.75 1.09 3.06 16.00
Oil 2.28 0.65 6.11 82.89 6.33 1.74 17.11
S&P 500 15.72 2.86 2.18 3.98 72.17 3.10 27.83
SSE 7.92 3.56 2.36 1.40 4.69 80.07 19.93
To 34.57 9.53 18.73 12.90 28.90 15.84 120.47
[Link] 103.49 101.02 102.73 95.78 101.06 95.92 20.08%
NET 3.49 1.02 2.73 − 4.22 1.06 − 4.08 –
Panel (C) Russia–Ukraine war period
BSE 77.54 1.61 0.98 1.06 17.09 1.72 22.46
Gold 0.93 84.08 1.44 6.33 4.78 2.43 15.92
KSE 1.10 0.84 93.30 2.47 1.21 1.07 6.70
Oil 0.66 6.19 3.10 81.72 3.97 4.36 18.28
S&P 500 5.60 3.56 1.22 2.06 86.31 1.24 13.69
SSE 1.68 2.40 0.67 2.52 4.52 88.21 11.79
To 9.98 14.59 7.41 14.44 31.58 10.83 88.84
[Link] 87.52 98.68 100.70 96.16 117.89 99.04 14.81%
NET − 12.48 − 1.32 0.70 − 3.84 17.89 − 0.96 –

elevated in the early months of the pandemic, gradu- later months, suggesting that the system absorbed the
ally diminishing in subsequent months. Visible shocks shocks. The war period reflects heightened volatility con-
in total volatility appear in early 2022, possibly attribut- nectedness in the early months of 2022, slowing down in
able to the Russian-Ukraine war. However, in comparison the later months.
to the COVID-19 period, these shocks exhibit a lower To complement the findings obtained from the TVP-
magnitude. The plot for the COVID-19 period indicates VAR model, the study also applied the Quantile Vector
heightened volatility throughout 2020, tapering off in Auto-Regression (QVAR) model to ensure consistency
Khan Future Business Journal 2024, 10(1):22 Page 11 of 15

Fig. 1 Total Connectivity Index (TCI) for the entire sample period and the three sub-periods

in the results. The outcomes of the QVAR model align demarcates the periods of COVID-19 announcement as
closely with those derived from the TVP-VAR model, global pandemics on March 11, 2020 and the Russian
albeit with minor deviations. For instance, in the case invasion in Ukraine on February 24, 2022. The COVID-
of the entire sample period, the QVAR model yielded a 19 pandemic induced stock price crashes, leading to an
TCI value of 15.49%, slightly lower than the TVP-VAR unprecedented surge in conditional volatilities across all
model’s result of 16.28%. In the sub-periods, the QVAR markets, as evident in the graph. The peaks in estimated
model indicated values of 15.88%, 18.04%, and 17.19% volatility (Fig. 2) reveal that during the COVID-19 pan-
for the Pre-, COVID, and Russia–Ukraine war periods, demic, the U.S. market experienced the highest volatility
respectively.5 peak in March, 2020. Notably, these peaks are prominent
Figure 2 illustrates the dynamic patterns of estimated in the month of March 2020. As anticipated, the U.S. and
conditional volatility, measured in terms of conditional Indian markets exhibited the highest levels of volatility,
standard deviations, across the selected markets. The while China demonstrated comparatively lower condi-
computation of conditional volatility involves the use tional volatility. These findings align with Basuony et al.
of asymmetric TGARCH (1, 1) model. The dotted line [6] who observed greater volatility in the U.S. market
and relatively lower volatility in the Chinese market. The
5
The results are not shown in the paper for brevity but are available from escalation in new COVID-19 cases and deaths, despite
the author on request. governmental efforts to curb the spread, contributed
Khan Future Business Journal 2024, 10(1):22 Page 12 of 15

Volality Gold Volality Oil

2.4 16

2.0 14
12
1.6
10
1.2 8

0.8 6
4
0.4
2
0.0 0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023

Volality S&P 500

Volality KSE
8
4.0
7
3.5
6
3.0
5
2.5
4
2.0
3
2 1.5

1 1.0

0 0.5
I II III IV I II III IV I II III IV I II III IV I II III IV I II III I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023

Volality SSEC
3.0 Volality BSE
6
2.5
5
2.0
4
1.5
3
1.0
2
0.5
1

0.0 0
I II III IV I II III IV I II III IV I II III IV I II III IV I II III I II III IV I II III IV I II III IV I II III IV I II III IV I II III
2018 2019 2020 2021 2022 2023 2018 2019 2020 2021 2022 2023
Fig. 2 Conditional volatility using TGARCH (1, 1)

to negative sentiments in the U.S., impacting market and alleviating market uncertainty. The TGARCH (1, 1)
volatility adversely. Conversely, the Chinese stock mar- model indicate that the excessive increase in conditional
kets appeared less affected, with prompt government volatility diminishes during the COVID-19 period for all
interventions conveying positive signals to investors markets. As the shocks are absorbed by these markets,
Khan Future Business Journal 2024, 10(1):22 Page 13 of 15

conditional volatility tends to decrease. Moreover, the affirm the escalating connectedness across the financial
figure also illustrates that, as a result of developments system during the COVID-19 outbreak and the Russia–
and the introduction of vaccines towards the end of 2020, Ukraine war periods, (ii) throughout the entire sample
there was a decline in volatility in financial markets, period and the COVID-19 and war sub-periods, the U.S.
driven by expectations of recovery and the re-establish- market emerged as the net transmitter of volatility, (iii)
ment of a new global normal. These observations align overall connectedness was higher during the pandemic
with the findings of To et al. [45], who documented a period compared to the Russia–Ukraine war period, and
reduction in volatility across 32 emerging and developed (iv) the impact of the US., market on other markets was
markets following the initiation of vaccine programs. In greater than that of the Chinese market.
comparison to the pandemics, the spikes in volatility are The present study has certain limitations, including
less pronounced during the Russian-Ukraine conflicted the restricted number of markets considered. Addition-
started from February 24, 2022. ally, the inclusion of the cryptocurrency market could
In summary, these results support the findings from enhance the comprehensiveness of future investigations
the TVP-VAR model that volatility spillovers were more alongside stock and commodities markets. For subse-
pronounced during the COVID-19 pandemic (TCI quent research, it might be advantageous to employ
20.8%) compared to the Russia–Ukraine war period (TCI wavelength coherence and quantile-based return fre-
14.8%). These findings align with the conclusions of Si quency linkage measures. These approaches can provide
Mohammed et al. [43], indicating that the volatility spikes insights into tail risk and the structure of connectedness
observed during the negative spillovers from the COVID- across both time and frequency domains.
19 crisis have a more enduring impact than those from
the Russian-Ukrainian conflict. The dynamics of volatility
Abbreviations
further reveal a time-varying behavior, as evidenced by GARCH Generalized Auto-Regressive Conditional Heteroscedasticity
the magnitude and direction of risk transmission among GCC​ Gulf Cooperation Council
different asset classes during the pandemic and Russia– GFC Global Financial Crisis
GFEVD Generalized Forecast Error Variance Decomposition
Ukraine war sub-periods. The findings carry significant GIRF Generalized Impulse Response Function
implications for investors and fund managers. To adapt to S&P Standard and Poor’s
periods of crises, such as those during the pandemic and TVP-VAR Time-Varying Parameter Vector Autoregression
WHO World Health Organization
the Russia–Ukraine war, they should consider adjusting
their investments by incorporating oil and gold. These Acknowledgements
commodities present favorable opportunities for hedging Not applicable.
and serving as safe havens against financial instability in Author contributions
the market. MNK is the sole author of the article. MNK collected and interpreted the data,
performed methodological and empirical analysis and conceptualized the
Analysis. The author has read and approved the final manuscript.

Conclusion Funding
This research aims to provide evidence of dependence No funding was availed for this study.

structures and return spill overs among the equity Availability of data and materials
markets of the U.S., China, India, and Pakistan, along The data and materials are available on request from the author.
with the pivotal commodities of oil and gold, during
two crisis periods: the COVID-19 pandemic and the Declarations
Russia–Ukraine war. The findings bear significance
Ethics approval and consent to participate
in comprehending the linkages between global and Not applicable.
regional markets and their impact on the major South
Asian markets of India and Pakistan. Diverging from Consent for publication
Not applicable.
prior literature, this paper contributes by analyzing the
linkages of the U.S. and Chinese markets with those of Competing interests
India and Pakistan, and the impact of globally important The author declare that he has no competing interests.

commodities during turbulent periods of pandemics and

war. Received: 14 December 2023 Accepted: 31 January 2024
We employed a novel TVP-VAR framework to Published: 14 February 2024

scrutinize the volatility connectedness of Chinese, Indian,

Pakistani, and U.S. markets, as well as oil and gold. The
main research findings are as follows: (i) the results
Khan Future Business Journal 2024, 10(1):22 Page 14 of 15

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Muhammad Niaz Khan earned a Ph.D. in Finance from the Univer-

sity of Dundee, Scotland, UK, and completed a Post-Doc at the Uni-
versity of Kentucky, USA. His research interests encompass Modern
Portfolio Theory, International Finance, stock market integration, and
macroeconomic analysis. He has contributed to reputable journals,
including Applied Economics, Journal of Financial Markets and Port-
folio Management, and Journal of Economic Integration.