Unveiling the tail dependence between the Saudi stock market and strategic commodities: what does the novel quantile-on-quantile connectedness tell us?

Purpose This research investigates the complex association between the Saudi stock market, as reflected by the Tadawul All Share Index index and the two major commodities, oil and gold. Design/methodology/approach The research contributes to the literature by employing the recently developed quantile-on-quantile connectedness (QQC) approach by Gabauer and Stenfors (2024). The QQC extends the conventional quantile connectedness proposed by Chatziantoniou et al. (2021) by combining the quantile connectedness approach with the quantile-on-quantile regression. This approach enables the examination of both directly and inversely related quantile spillovers across the three markets, allowing identification of how strongly a specific quantile of one variable influences the quantiles of the others. Findings Results reveal that the stock market and each commodity market are highly linked at both directly related and reversely related quantiles. However, the connectedness is very weak when at least one market is in normal condition. The Saudi stock market is a net receiver of shocks from the oil market, while oil plays a leading role in the Saudi economy. However, gold generally acts as a net receiver of shocks, reflecting its function as a safe-haven during stock market fluctuations. These patterns underscore the asymmetric transmission of risk across markets, suggesting that oil-driven volatility has broader economic implications, while gold provides a stabilizing effect for portfolios exposed to stock market fluctuations. Originality/value This study is the first to examine the connections among stocks, gold and oil using the quantile-on-quantile connectedness approach. Its novelty lies in examining both directly and inversely related quantile spillovers across the three markets.