On the higher-order moment interdependence of stock and commodity markets: A wavelet coherence analysis

• Published in: The Quarterly review of economics and finance 2022-02, Vol.83, p.135-151
• Main Author: Ahmed, Walid M.A.
• Format: Article
• Language: English
• Subjects: Commodity markets; Higher-order moments; Interdependence; Stock markets; Wavelet phase-difference
• ISSN: 1062-9769; 1878-4259
• DOI: 10.1016/j.qref.2021.12.003

•We examine the time-frequency relations between equity and commodity markets, in terms of mean, variance, skewness, and kurtosis.•The interdependence structure of the same-order moments turns out to be time- and frequency-dependent.•We detect cross-skewness and cross-kurtosis effects at medium- and long-term time scales for the equity-gold pair.•Cross-skewness and cross-kurtosis linkages for the equity-energy pair are pronounced at short-term horizons. This study aims to provide fresh time-frequency evidence on global equity and commodity market interdependencies, in terms of the first four moments of their respective return distributions (i.e., mean, variance, skewness, and kurtosis), using wavelet analysis techniques. The results indicate that the co-movement structure of the same-order moments of equity, gold, and energy returns tends to be both time-dependent and frequency-dependent. With respect to the equity-gold nexus, we detect substantial cross-volatility, cross-skewness, and cross-kurtosis effects at medium- and long-term time scales during the 2010–2014 turmoil, with the stock market leading the gold counterpart in most cases. From 2015 onwards, we observe a strong degree of coherence at high and medium frequencies for each of the four same-order moment pairs, but generally with zero-phase difference. The findings for the equity-energy nexus suggest significant mean and volatility co-movement over most of the sample period and across frequency bands. Additionally, cross-skewness and cross-kurtosis linkages are more pronounced at short- and medium-term horizons and, noticeably, in the wake of global downturns. Practical implications are deduced from the analysis.