Global connectivity between commodity prices and national stock markets: A time‐varying MIDAS analysis

In this paper, we provide a comprehensive study of the linkages between global commodity price shocks and national financial markets. We consider an overall price index, three proxies of global oil shocks (overall, supply and demand) and non‐oil (metal) price shocks and assess their causal relationships with the stock prices of a large set of heterogeneous countries in terms of development. Using a mixed‐frequency VAR approach in a time‐varying setting, we construct a Global Commodity Connectivity Index and a Global Stock Connectivity Index to monitor the prevalence, over time, of Granger‐Causality from commodities to stock markets and vice versa. Our results show the existence of time‐varying causality during the observed period depending on the level of country development and the position on the global commodity shocks super‐cycles: the commodities depression of the 1980s and 1990s, the commodity boom of the 2000s and the post‐Global Financial Crisis.