Connectedness in implied higher-order moments of precious metals and energy markets

• Published in: Energy (Oxford) Vol. 263; p. 125588
• Main Authors: Bouri, Elie, Lei, Xiaojie, Xu, Yahua, Zhang, Hongwei
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 15.01.2023
• Subjects: Network analysis; Option implied moments; Precious metals and energy markets; Static and dynamic connectedness; Time-frequency spillover domain; Time-frequency spillover domain; Precious metals and energy markets; Static and dynamic connectedness; Option implied moments; Network analysis
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2022.125588

This paper investigates connectedness in option implied moments, such as volatility, skewness, and kurtosis across precious metals (gold, silver) and energy (crude oil and natural gas) markets in both time and frequency domains. Using daily option data from January 4, 2010, to December 31, 2020, we first construct implied moments and then examine their static and dynamic connectedness via time-frequency spillover methods and network analysis. The results show that system-wide connectedness weakens as the moment order becomes higher, and the level of spillovers in all implied moments is much higher at a lower frequency. The spillovers show substantial time variation and pronounced intensity during turbulent periods. Gold is the net transmitter in precious metals and energy markets. However, if excluding the crisis period in 2020, crude oil and gold play dominant roles. Further analysis shows the main drivers of the spillover indices for the higher-order moments. Our findings have important implications for commodity traders and investors, risk managers, and policymakers. •Construct implied higher-order moments for gold, silver, oil, and natural gas.•Study dynamic spillovers via time-frequency methods and network analysis.•Spillovers are higher at lower frequency and weaken as the moment order increases.•Gold is the net transmitter in all three estimators in this system.•Crude oil shifts from net transmitter to net recipient during crisis period.