Impacts of oil volatility shocks on metal markets: A research note

To the best of our knowledge, this is the initial study to investigate the predictive power of crude oil volatility index (OVX), a measure of oil market uncertainty, in explaining the return structure of industrial and precious metal markets. Applying different forms of the GARCH-jump model, we document the following major findings. First, we report a significant price spillover running from oil market to industrial metal sector. In addition, jumps do exist in the underlying metal market returns and such jumps are time-varying. Second, we do not find any evidence that oil volatility shocks impact the aggregate precious metal market. However, such effect is present at least in the silver market, if we disaggregate the data. Third, while examining the impact of global financial crisis on the association between oil and metal markets, we report that the effects of OVX hold for both crisis and post crisis periods. Finally, we document the existence of asymmetry in the linkages between oil and the industrial metal markets. To be specific, spillovers for the positive oil volatility shocks appear to be larger than that for the negative oil volatility shocks confirming the existence of uneven spillover effects.