Article Not peer-reviewed version

Commodities and Sectoral Volatility: A

Post-COVID Analysis of GOLD and OIL
Futures in India

Narayana Maharana * , Ashok Kumar Panigrahi * , Suman Kalyan Chaudhury

Posted Date: 5 February 2025

doi: 10.20944/preprints202502.0347.v1

Keywords: Commodity; Indian financial sector; hedging; DCC-GARCH

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Article

Commodities and Sectoral Volatility: A Post-COVID

Analysis of GOLD and OIL Futures in India
Narayana Maharana 1,*, Ashok Kumar Panigrahi 2,* and Suman Kalyan Chaudhury 3
1 Asst. Professor, Department of Management Studies, Gayatri Vidya Parishad College of Engineering,
Kommadi, Visakhapatnam-530048, Andhra Pradesh, India
2 Associate Professor of Finance, NMIMS University, Shirpur-425405, Maharashtra, India
3 Faculty Member, Dept of Business Administration, Berhampur University, Bhanja Bihar, Berhampur-761110,
Odisha, India; [email protected]
* Correspondence: [email protected] Tel.: +91 94934 82084 (N.M.); [email protected]
Tel.: +91 88888 10975 (A.K.P.)

Abstract: This study examines the volatility and hedging effectiveness of commodities, specifically
GOLD and OIL, on the Indian stock market, focusing on both aggregate and sectoral indices. Data
has been collected from 1 Jan 2021 to 31 Dec 2024 to cover the post-COVID period. Utilising the
Asymmetric Dynamic Conditional Correlation Generalized Autoregressive Conditional
Heteroskedasticity (ADCC-GARCH) model, we analyse the volatility spillovers and time-varying
correlations between commodity and stock market returns. The analysis of spillover connectedness
reveals that both commodities exhibit limited and inconsistent hedging potential. GOLD
demonstrates low and stable spillovers with most sectors, indicating its diminished role as a reliable
safe-haven asset in Indian markets. OIL shows relatively higher but volatile spillover effects,
particularly with sectors closely tied to energy and industrial activities, reflecting its dependence on
external economic and geopolitical factors. The originality of this study lies in uncovering the
nuanced, sector-specific interactions between GOLD, OIL, and the Indian stock market, emphasising
the need to explore alternative hedging mechanisms or diversified approaches to risk management
in the post-COVID recovery phase.

Keywords: Commodity; Indian financial sector; hedging; DCC-GARCH

1. Introduction
Over the past two decades, commodity markets have experienced a significant influx of capital,
particularly from index funds [1,2]. This trend was primarily driven by the early 2000s stock market
collapse triggered by a market bubble. The crisis heightened awareness of the negative correlation
between commodity and stock returns, leading investors to view commodities as an effective means
to reduce portfolio risk [3]. Consequently, substantial capital began flowing into commodity markets,
with index funds playing a dominant role in commodity asset allocation—a phenomenon referred to
as the financialisation of commodities [4]. This financialisation has brought a surge of capital into the
commodity sector. For example, the Teucrium Corn Fund, an exchange-traded fund (ETF) tracking
corn futures prices, had investments totalling $107 million in Corn futures contracts by 2011 [5]. Such
financialisation has significantly amplified the trading volume of commodity markets, surpassing
historical levels [6]. Moreover, many researchers have extensively covered the relationship between
trading volume and market liquidity[7]. Numerous scholars often use Trading volume as a proxy for
market liquidity[8–10], underscoring the integral role of financialisation in shaping market dynamics.
Research highlights various strategies for hedging risk exposure in stock markets. For instance,
investments in OIL and GOLD futures effectively mitigate stock market risks in developed economies
[11,12]. Similarly, Chkili et al. [13] investigate the interplay between US stock market volatility and
crude OIL prices. Their findings suggest that incorporating both OIL and stock assets in a portfolio

© 2025 by the author(s). Distributed under a Creative Commons CC BY license.

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can help minimise overall portfolio risk. Moreover, volatility and hedging dynamics analysis of
socially responsible investing (SRI) relative to OIL and GOLD prices using multivariate GARCH
models show that SRI behaves similarly to the S&P 500, suggesting SRI investors would incur similar
hedging costs with oil and gold as traditional S&P 500 investors [14]. Further studies extended the
analysis of volatility spillovers to European stock markets at both aggregate and sectoral levels,
employing a VAR-GARCH model to capture cross-market volatility transmissions to observe an
uneven impact of OIL price changes across industries [15]. During financial crises, stock prices
decline as investors gravitate toward safer assets like GOLD. Consequently, the GOLD and stock
markets often exhibit co-movement and a well-balanced allocation across these markets offers
significant hedging potential [16]. Expanding on this analysis, researchers have examined the
evolving relationships among stock markets, bonds, and GOLD returns in the US, U.K., and
Germany, emphasising the dual role of GOLD as a hedging instrument and a safe haven during
periods of financial distress [17] These conclusions were further supported by research confirming
consistent effectiveness of GOLD in portfolio risk management [18,19].

2. Literature Review
A significant body of literature has examined the volatility spillover between stock and
commodity markets. For instance, Abdelhedi & Boujelbène-Abbes [20] explore the dynamics of
volatility transmission between the Chinese stock market, investor sentiment, and the OIL market
during the turbulent period of 2014–2016. Utilising the dynamic conditional correlation generalised
autoregressive conditional heteroscedasticity (DCC-GARCH) model and wavelet decomposition
techniques, their study identifies a bidirectional spillover effect between OIL market shocks and
Chinese investor sentiment. This finding suggests that investor sentiment is the key channel through
which volatility is transmitted between the OIL and stock markets.
Similarly, Vardar et al. [21] employ a vector autoregressive Baba-Engle-Kraft-Krone (VAR-
BEKK)-GARCH model to examine the shock transmission and volatility spillover effects across the
daily stock market indices of ten countries, including the US, U.K., France, Germany, Japan, Turkey,
China, South Korea, South Africa, and India. The study incorporates data from five major commodity
spot prices—crude OIL, natural gas, platinum, silver, and GOLD from 2005 to 2016. Their analysis
reveals bidirectional spillover effects between stock market and commodity returns, underscoring
the complex interdependencies between these markets. Creti et al. [22] examine the relationship
between price returns for 25 commodities and stocks over 2001–2011, focusing on the energy sector.
Using the dynamic conditional correlation (DCC) GARCH method, they revealed that the correlation
between commodity and stock markets fluctuates over time, with heightened volatility observed,
particularly following the 2007–2008 financial crisis. This finding underscores the evolving links
between commodity and stock markets, highlighting the increasing financialisation of commodities.
Prior studies on the hedging properties of gold and other assets during market uncertainties
offered varied perspectives on their roles across different crises and contexts [23,24]. Akhtaruzzaman
et al. [24] identify a phase-dependent efficacy of gold, demonstrating that while gold initially acted
as a safe haven during the early stages of the pandemic, its effectiveness diminished later as investors
increasingly sought its “flight-to-safety” potential despite higher hedging costs. Salisu extends this
argument by affirming the utility of GOLD futures against crude oil price volatility across pre- and
post-pandemic periods, showcasing its robustness compared to other precious metals. These findings
highlight the strategic relevance of GOLD during economic distress while underlining the
complexities in its hedging efficiency.
Building on this, Tarchella et al. [25] broadened the scope by comparing gold with other assets.
They emphasised the comparative advantage of gold as a diversifier across G7 equity markets in all
conditions. At the same time, cryptocurrencies such as Bitcoin and Ethereum emerge as effective
hedges during crisis periods, particularly in specific regions. On the other hand, some studies argue
that gold stocks outperform platinum stocks as hedge assets during downturns, especially post-
COVID, suggesting region-specific hedging dynamics [23,26]. Further research by Arfaoui et al. [27]
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refines these insights by exploring volatility spillovers between gold and energy commodities across
distinct COVID-19 phases, claiming that hedging strategies are most effective during the COVID
vaccination period and are influenced by external factors like market uncertainty and policy changes.
Similarly, Basher & Sadorsky [28] analyse the volatility spillover effects of OIL, GOLD, the
volatility index (VIX), and bonds in emerging stock markets. Their findings argued that OIL provides
a more effective hedge than GOLD when mitigating stock market risk. While much research has
explored the roles of GOLD and OIL in portfolio diversification and hedging, there is a relative
scarcity of studies focused on the post-COVID period, specifically in Indian sectoral indices.
However, Indian stock markets have increasingly become attractive destinations for investors and
asset managers seeking portfolio diversification [29–32].
A study by Jose & Jose [33] examined the hedging effectiveness of constant and dynamic hedge
ratios in the Indian commodity market. They focused on 13 highly traded commodity futures
contracts, including GOLD, silver, copper, zinc, aluminium, nickel, lead, cardamom, mentha OIL,
cotton, crude palm OIL, crude OIL, and natural gas, spanning from 2008 to 2024. They claimed that
agricultural futures contracts provided higher hedging effectiveness (approximately 30%) than non-
agricultural commodity futures (around 20%), indicating that hedging strategies are more effective
for agricultural commodities within the Indian market context. A similar study by Gupta et al. [34]
examined agricultural commodities like castor se, guar seed, and non-agricultural commodities. It
revealed that the Indian futures market provided higher hedging effectiveness for precious metals
(65–75%) than industrial metals and energy commodities (less than 50%). Notably, hedging
effectiveness for castor seed and natural gas was even lower than 10% in the Indian market.
Research on the hedging effectiveness of commodity futures contracts in the Italian field crop
sector highlights their ability to mitigate price risks, though effectiveness varies by commodity and
market conditions [35]. Similarly, a study on the Chinese market analysed 15 commodity futures
using a quantile-based hedging framework, revealing that most futures products function as effective
hedges and safe havens for spot prices [36]. The study further reported that hedge ratios followed a
U-shaped pattern, increasing in both bearish and bullish markets. In terms of portfolio performance,
metal commodities demonstrated the strongest results, followed by agricultural commodities, while
energy commodities underperformed [36].
The existing literature on the volatility spillover and hedging effectiveness of commodities has
primarily focused on global and regional market dynamics, with significant contributions examining
the relationships between stock and commodity markets, mainly GOLD, OIL, and other key
commodities like silver and natural gas [20–22]. These studies have highlighted the bidirectional
spillover effects between stock markets and commodities like OIL and GOLD, with varying results
depending on market conditions, geographical regions, and commodity types. Again, Basher &
Sadorsky [28] emphasise the role of commodities in emerging markets, particularly in mitigating
stock market risk. While these studies provide a comprehensive view of hedging effectiveness in
developed and global markets, a notable gap exists in understanding the post-COVID hedging
effectiveness of specific commodities, particularly within the Indian context. Moreover, while
research has explored the hedging effectiveness of GOLD and OIL futures, there is limited analysis
of how these hedging strategies perform across specific Indian sectoral indices post-COVID. The
economic disruption caused by the pandemic has likely altered the relationships between these
commodities and sectoral stock indices, warranting a fresh investigation into how GOLD and OIL
futures can be used to hedge risks in various sectors like Energy, consumer goods, and financial
services. The study aims to address this gap by focusing specifically on the post-COVID period and
examining how hedging with GOLD and OIL futures can enhance risk management strategies for
key Indian sectoral indices. This research will offer novel insights into these commodities' sector-
specific hedging effectiveness, considering the unique market conditions and offering implications
for portfolio diversification and risk mitigation strategies in the post-COVID era.
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3. Methodology
The study utilises daily closing price data for GOLD and OIL futures, along with the Nifty 50
(Nifty) aggregate index and four sectoral indices: Auto, Energy, Finance, and Metal, covering the
period from 1 Jan 2021 to 31 Dec 2024. As a broad-based benchmark index, the Nifty index captures
the aggregate market sentiment and performance, making it an ideal proxy for overall market
dynamics. The sectoral indices were chosen to provide a granular perspective on how GOLD and
OIL futures influence specific industries that are closely linked to economic cycles and commodity
price fluctuations. For instance, the Energy sector is directly impacted by OIL price movements, while
the Metal sector is sensitive to global commodity trends, including GOLD. The Finance sector reflects
macroeconomic conditions, such as inflation and interest rates, which are influenced by commodity
markets, and the Auto sector represents a significant driver of industrial demand. The data was
sourced from reliable platforms such as the National Stock Exchange (NSE) for stock indices and the
Multi Commodity Exchange (MCX) or Bloomberg for GOLD and OIL futures. To ensure robustness,
the price data was transformed into daily log returns. Stationarity of the return series was tested
using the Augmented Dickey-Fuller (ADF) tests. Descriptive statistics and normality tests, such as
the Jarque-Bera test, were performed to examine the distributional properties of the return series.
The study employs the following econometric models to analyse volatility dynamics, spillover
effects, and hedging effectiveness.
Vector Autoregression (VAR): Used to capture the linear interdependencies among GOLD and OIL
futures and the stock indices, providing insights into the lagged relationships between these
variables.
Asymmetric Dynamic Conditional Correlation GARCH (ADCC-GARCH): A model that examines
volatility spillovers and time-varying correlations between the commodity futures and stock indices,
accommodating asymmetric shocks.
Diebold-Yilmaz Spillover Index: Measures the direction and magnitude of volatility spillovers
among GOLD, OIL, and the stock indices, offering a comprehensive view of interconnected risks.
Dynamic Hedge Ratio and Hedging Effectiveness: The hedge ratio was computed dynamically using
the time-varying covariance and variance obtained from the ADCC-GARCH model. The hedging
effectiveness was evaluated by comparing the variance of a hedged portfolio against an unhedged
portfolio.

4. Analysis
This section may be divided by subheadings. It should provide a concise and precise description
of the experimental results, their interpretation, as well as the experimental conclusions that can be
drawn.

4.1. Demographic Observations

Figures 1 and 2 depict the price trends and log differentiated returns of different indices from
January 2021 to December 2024. The Auto, Energy, Finance, Metal, and nifty indices show consistent
upward trends, indicating growth in these sectors during the post-COVID recovery phase, likely
driven by increased economic activity and investor confidence. In contrast, the GOLD index exhibits
a general upward movement, though less pronounced, reflecting its role as a safe-haven asset.
However, the OIL index demonstrates significant volatility with no clear upward trend, highlighting
fluctuations in global OIL prices and demand-supply dynamics.
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Auto Energy Finance

28,000 50,000 26,000

45,000 24,000
24,000
40,000
22,000
20,000 35,000
20,000
16,000 30,000
18,000
25,000
12,000
20,000 16,000

8,000 15,000 14,000

21 22 23 24 21 22 23 24 21 22 23 24

Metal Nifty GOLD

12,000 28,000 2,800

2,600
10,000
24,000
2,400
8,000
20,000 2,200
6,000
2,000
16,000
4,000
1,800

2,000 12,000 1,600

21 22 23 24 21 22 23 24 21 22 23 24

OIL
140

120

100

80

60

40
21 22 23 24

Figure 1. Trend of the selected commodity futures and sectoral indices.

Log D ifferenced Aut o Log Differenced Energy Log Differenced Finance

.06 .10 .08

.04
.05 .04
.02
.00 .00
.00

-.02 -.05 -.04

-.04
-.10 -.08
-.06

-.08 -.15 -.12

21 22 23 24 21 22 23 24 21 22 23 24

Log D ifferenced M etal Log D ifferenced N ift y Log Differenced GOLD

.08 .06 .04

.04
.04 .02
.02
.00 .00 .00

-.04 -.02 -.02

-.04
-.08 -.04
-.06

-.12 -.08 -.06

21 22 23 24 21 22 23 24 21 22 23 24

Log D ifferenced OIL

.10

.05

.00

-.05

-.10

-.15
21 22 23 24

Figure 2. Daily log differentiated Return plot of the selected sectors and commodity futures.

Table 1 presents the demographic information of the commodity and sectoral variables used in
the study. The mean values suggest that Energy has the highest average return at 17.579, followed by
Auto at 13.090. In contrast, GOLD has the lowest at 0.638. The standard deviations reveal varying
levels of risk, with Energy exhibiting the highest volatility (387.833) and GOLD the lowest (18.338).
Skewness values indicate that most of the series are negatively skewed. Energy (-2.614) shows the
strongest negative skew, indicating a tendency towards more significant negative returns. Kurtosis
values are high, particularly for Energy (41.939), suggesting fat tails or extreme outliers in the
distribution. Jarque-Bera test results, marked with asterisks, confirm that all variables deviate
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significantly from normality. The Augmented Dickey-Fuller (ADF) test at the level indicates non-
stationarity for most variables, except Finance, which is already stationary at the first difference, as
indicated by the significant ADF values in the differenced data.

Table 1. Descriptive statistics of the selected indices.

Auto Energy Finance Metal Nifty GOLD OIL

Mean 13.090 17.579 8.039 5.204 9.292 0.638 0.023
Median 6.600 17.325 2.625 6.000 5.275 0.550 0.090
Maximum 1090.450 2726.400 1109.150 516.450 735.850 58.100 8.010
Minimum -1007.950 -5357.800 -1776.900 -1068.400 -1379.400 -93.100 -15.000
Std. Dev. 182.715 387.833 207.506 111.602 164.767 18.338 1.969
Skewness -0.392 -2.614 -0.646 -1.133 -0.710 -0.602 -0.814
Kurtosis 7.391 41.939 10.570 12.652 9.603 5.315 8.942
Jarque-Bera 858.918* 66629.855* 2546.040* 4243.143* 1968.809* 293.884* 1638.216*
ADF (Level) -1.903 -1.330 -3.128 -2.474 -2.298 -1.370 -2.359
ADF(1-Diff.) -7.416* -35.511* -11.029* -33.503* -32.672* -8.743* -10.380*

4.2. The VAR model

The VAR results at lag 1 presented in Table 2 show the interdependence among sectoral spot
indices and gold futures, with key insights derived from the coefficients, standard errors, and t-
statistics (given in square brackets). GOLD significantly impacts the Metal index positively (t = 2.28)
and the Nifty index marginally (t = 1.87), indicating some spillover effects from GOLD to these
indices. Auto has a statistically significant influence on itself (t = 2.03), showing strong persistence,
but its impact on other indices remains weak or insignificant. Energy demonstrates a strong and
negative influence on all indices, particularly the Metal (t = -4.97) and Finance (t = -4.61), indicating
its critical role as a driver of sectoral performance. Finance on the other hand shows minimal impact
across the indices, with all t-values insignificant, reflecting weak sectoral linkages. Metal significantly
affects Energy positively (t = 3.34), hinting at interconnected movements between these sectors, while
other relationships are less pronounced. Nifty exhibits some influence on Finance (t = 1.84) and
marginally on Auto (t = 1.21), emphasising the index's role as a broad market indicator.
The impulse response plots in Figure 3 reveal that a one-standard deviation shock to GOLD
induces varying short-term impacts on the other variables. Energy and Metal exhibit the strongest
initial responses, with Energy peaking sharply before stabilising within 2-3 periods, while Metal
shows a more gradual decline, indicating a slightly prolonged effect. Auto, Finance, and Nifty also
respond positively but with lower intensity; their responses stabilise near zero within 2-4 periods,
highlighting the short-lived influence of GOLD shocks. Overall, the impact of GOLD shocks across
all variables is temporary, dissipating quickly, and does not result in long-term effects.

Table 2. VAR Model presented for GOLD and all sectoral indices.

GOLD Auto Energy Finance Metal Nifty

GOLD(-1) -0.0616 0.0997 0.7442 0.2954 0.4304 0.5184
0.0315 0.3099 0.6553 0.3510 0.1886 0.2774
[-1.95638] [ 0.32179] [ 1.13558] [ 0.84145] [ 2.28212] [ 1.86905]
Auto(-1) 0.0046 0.0938 0.1366 0.0682 0.0317 0.0589
0.0047 0.0462 0.0976 0.0523 0.0281 0.0413
[ 0.99076] [ 2.03097] [ 1.39952] [ 1.30488] [ 1.12975] [ 1.42428]
Energy(-1) 0.0007 -0.1118 -0.2896 -0.1260 -0.0729 -0.1244
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0.0024 0.0241 0.0510 0.0273 0.0147 0.0216

[ 0.29638] [-4.63883] [-5.68278] [-4.61740] [-4.97144] [-5.76622]
Finance(-1) 0.0052 -0.0038 0.0162 -0.0213 0.0201 -0.0037
0.0063 0.0625 0.1322 0.0708 0.0380 0.0559
[ 0.81382] [-0.06074] [ 0.12232] [-0.30032] [ 0.52969] [-0.06704]
Metal(-1) 0.0068 -0.0261 0.5399 -0.1302 0.0687 -0.0195
0.0078 0.0763 0.1615 0.0865 0.0465 0.0683
[ 0.87924] [-0.34187] [ 3.34372] [-1.50547] [ 1.47893] [-0.28474]
Nifty(-1) -0.0140 0.1293 0.1082 0.2226 0.0106 0.1613
0.0108 0.1064 0.2249 0.1205 0.0647 0.0952
[-1.29530] [ 1.21549] [ 0.48083] [ 1.84764] [ 0.16442] [ 1.69375]
C 0.6584 12.5679 16.2142 7.9092 5.0002 8.8685
0.5722 5.6343 11.9161 6.3824 3.4295 5.0434
[ 1.15068] [ 2.23060] [ 1.36070] [ 1.23921] [ 1.45801] [ 1.75844]

Response to Cholesky One S.D. (d.f. adjusted) Innovations

95% CI using analytic asymptotic S.E.s
Response of Auto to GOLD Innovation Response of Energy to GOLD Innovation
20

15 40

10 30

5 20

0
10
-5
0
-10
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of Finance to GOLD Innovation Response of Metal to GOLD Innovation

20
20
15

10
10

0 5

0
-10
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of Nifty to GOLD Innovation

15

10

1 2 3 4 5 6 7 8 9 10
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Figure 3. Impulse response curve for the response of Sectors to the innovations of GOLD Future.

The VAR results provided in Table 3 indicate significant interdependencies among the variables,
with several noteworthy observations. A one-period lag of OIL has a significant and strong positive
impact on Energy (t=3.84) and Metal (t=4.67), while its influence on other variables is relatively
weaker and statistically insignificant. Auto positively impacts itself (t=2.05), indicating some degree
of autocorrelation, but its effects on other variables are marginal and not strongly significant. Energy
demonstrates a significant negative impact across all variables, including itself (t=-5.60), suggesting
a dominant adverse spillover effect. Conversely, Finance shows limited influence, with no significant
impact on any variable. Metal positively impacts Energy (t=3.08), reflecting a significant relationship,
while its effects on other variables are negligible. Nifty positively influences Finance (t=1.80) and itself
(t=1.59), though its effects on other variables are not statistically significant. The constant terms
indicate strong baseline values for Auto and Energy, suggesting inherent stability or other factors
driving these sectors. Overall, the results highlight that OIL and Energy have the most pronounced
effects, while Finance and Nifty exhibit weaker interactions.

Table 3. VAR Model presented for OIL and all sectoral indices.

OIL Auto Energy Finance Metal Nifty

OIL(-1) 0.017385 3.443406 23.22171 2.027948 8.112974 4.99203
0.03134 2.871299 6.037013 3.255168 1.734898 2.571482
[ 0.55474] [ 1.19925] [ 3.84656] [ 0.62299] [ 4.67634] [ 1.94130]
Auto(-1) 0.000353 0.0946 0.14253 0.069429 0.034304 0.061175
0.000503 0.046127 0.096985 0.052294 0.027871 0.041311
[ 0.70041] [ 2.05084] [ 1.46961] [ 1.32766] [ 1.23082] [ 1.48086]
Energy(-1) -0.00039 -0.11097 -0.28412 -0.12554 -0.07098 -0.12317
0.000263 0.024092 0.050653 0.027312 0.014557 0.021576
[-1.47729] [-4.60621] [-5.60910] [-4.59656] [-4.87634] [-5.70848]
Finance(-1) 0.000589 -0.00295 0.022688 -0.01804 0.024383 0.001771
0.00068 0.062344 0.131081 0.070679 0.03767 0.055834
[ 0.86614] [-0.04733] [ 0.17308] [-0.25525] [ 0.64729] [ 0.03172]
Metal(-1) 0.001114 -0.03318 0.494394 -0.12701 0.058128 -0.0181
0.000831 0.07616 0.160128 0.086342 0.046017 0.068207
[ 1.33971] [-0.43561] [ 3.08748] [-1.47101] [ 1.26317] [-0.26536]
Nifty(-1) -0.00084 0.128487 0.101064 0.216407 0.004034 0.151043
0.001157 0.106036 0.222944 0.120212 0.064069 0.094963
[-0.72607] [ 1.21173] [ 0.45332] [ 1.80022] [ 0.06297] [ 1.59053]
C 0.021576 12.56595 16.2421 8.043138 5.107227 9.079113
0.06143 5.62809 11.83327 6.38052 3.400608 5.040414
[ 0.35123] [ 2.23272] [ 1.37258] [ 1.26058] [ 1.50186] [ 1.80126]

The impulse response curves given in Figure 4 show the dynamic responses of sectoral indices
(Auto, Energy, Finance, Metal, and Nifty) to a one standard deviation shock in the OIL index over 10
periods. Notably, Energy exhibits the strongest positive response, peaking sharply in the first period
and gradually converging toward zero, indicating a highly sensitive yet short-lived impact of oil
shocks. Metal also responds positively with a strong initial spike but stabilises faster compared to
Energy. In contrast, Auto, Finance, and Nifty demonstrate relatively muted responses. Auto and
Finance show small negative responses initially, which stabilise after 3 periods, while Nifty has a
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slight positive response that quickly diminishes. The overall results highlight that oil shocks
significantly influence Energy and Metal, reflecting the dependence of these sectors on oil price
fluctuations, whereas Auto, Finance, and Nifty are less affected.

Response to Cholesky One S.D. (d.f. adjusted) Innovations

95% CI using analytic asymptotic S.E.s
Response of Auto to OIL Innovation Response of Energy to OIL Innovation

15
60

10
40
5
20
0

0
-5

1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of Finance to OIL Innovation

Response of Metal to OIL Innovation

15 20

10 16

12
5
8
0
4
-5
0

-10
1 2 3 4 5 6 7 8 9 10 1 2 3 4 5 6 7 8 9 10

Response of Nifty to OIL Innovation

16

12

-4

1 2 3 4 5 6 7 8 9 10

.
Figure 4. Impulse response curve for the response of Sectors to the innovations of OIL Future.

4.3. The Diebold-Yilmaz Spillover Index

The Diebold-Yilmaz Spillover Connectedness Index plots presented in Figure 5 highlight the
dynamic but relatively limited hedging abilities of GOLD and OIL with Indian sectoral indices. For
GOLD, the spillover effects with sectors such as Auto, Finance, and Nifty are moderate, showing
occasional spikes during periods of market volatility. However, the overall trends suggest that
GOLD's traditional role as a safe-haven asset is not strongly evident in this period, likely due to
evolving market conditions and diminished investor reliance on GOLD as a risk mitigation tool. The
relatively stable and low spillovers with sectors like Energy and Metal further indicate that GOLD's
hedging effectiveness is weak and fails to provide consistent protection against sectoral risks.
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GOLD and Auto OIL and Auto

5 7

6
4
5

3 4

3
2

2
1
1

0 0
IV I II III IV I II III IV I II III IV IV I II III IV I II III IV I II III IV
2021 2022 2023 2024 2021 2022 2023 2024

GOLD and Energy OIL and Energ y

4 12

3
10

3
8
2
6
2
4
1

1 2

0 0
IV I II III IV I II III IV I II III IV IV I II III IV I II III IV I II III IV
2021 2022 2023 2024 2021 2022 2023 2024

GOLD and Finance OIL and Finance

5 9
8
4
7
6
3
5
4
2
3

1 2

1
0 0
IV I II III IV I II III IV I II III IV IV I II III IV I II III IV I II III IV
2021 2022 2023 2024 2021 2022 2023 2024

GOLD and Metal OIL and Metal

6 8

7
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6
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3 4

3
2
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0 0
IV I II III IV I II III IV I II III IV IV I II III IV I II III IV I II III IV
2021 2022 2023 2024 2021 2022 2023 2024

GOLD and Nift y OIL and Nifty

5 8

7
4
6

3 5

4
2
3

2
1
1

0 0
IV I II III IV I II III IV I II III IV IV I II III IV I II III IV I II III IV
2021 2022 2023 2024 2021 2022 2023 2024

Figure 5. Diebold-Yilmaz Spillover Index Plot (200-day windows, 10-step horizon.

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OIL, on the other hand, shows more pronounced spillovers with the Energy, Metal, and Auto
sectors, reflecting its fundamental connection to these industries. However, the variability in spillover
intensity across time suggests that OIL's ability to hedge against sectoral risks is context-dependent,
with sharp spikes primarily driven by global supply-chain disruptions or geopolitical tensions. These
fluctuations underline OIL's limited and inconsistent role as a hedging instrument during the post-
COVID recovery period. The analysis demonstrates that neither GOLD nor OIL provides robust
hedging capabilities for Indian sectoral indices in the studied timeframe, emphasising the need for
diversified strategies to mitigate risks in the post-pandemic economic environment.

4.4. ADCC-GARCH Model

Table 4. ADCC-GARCH Model.

Indices Parameters Estimate Std. Error t-value Sig.

Auto μ 0.0010 0.0004 2.3907 0.017
AR1 0.3146 0.3548 0.8867 0.375
MA1 -0.2511 0.3460 -0.7255 0.468
ω 0.0000 0.0000 0.1175 0.906
α1 0.0657 0.1979 0.3319 0.740
β1 0.9187 0.2338 3.9301 0.000
Energy μ 0.0010 0.0005 2.0334 0.042
AR1 0.9042 0.0952 9.4941 0.000
MA1 -0.8738 0.1105 -7.9074 0.000
ω 0.0000 0.0000 2.6261 0.009
α1 0.2222 0.0666 3.3359 0.001
β1 0.4771 0.1469 3.2486 0.001
Finance μ 0.0006 0.0003 1.7607 0.078
AR1 -0.1356 0.1542 -0.8792 0.379
MA1 0.1978 0.1445 1.3691 0.171
ω 0.0000 0.0000 2.5524 0.011
α1 0.1088 0.0202 5.3851 0.000
β1 0.8488 0.0314 27.0056 0.000
Metal μ 0.0011 0.0005 2.3131 0.021
AR1 -0.8764 0.1186 -7.3875 0.000
MA1 0.8557 0.1289 6.6402 0.000
ω 0.0000 0.0000 1.2522 0.211
α1 0.1569 0.0874 1.7958 0.073
β1 0.6969 0.1848 3.7720 0.000
Nifty μ 0.0008 0.0003 3.1082 0.002
AR1 -0.1435 0.2159 -0.6650 0.506
MA1 0.1962 0.2086 0.9407 0.347
ω 0.0000 0.0000 1.1233 0.261
α1 0.1345 0.0317 4.2364 0.000
β1 0.8207 0.0422 19.4436 0.000
GOLD μ 0.0002 0.0003 0.8673 0.386
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AR1 0.1738 0.1713 1.0149 0.310

MA1 -0.2229 0.1686 -1.3223 0.186
ω 0.0000 0.0000 2.6143 0.009
α1 0.0020 0.0002 12.3944 0.000
β1 0.9957 0.0002 5546.0452 0.000
OIL μ 0.0009 0.0006 1.3661 0.172
AR1 -0.3345 0.2131 -1.5700 0.116
MA1 0.3705 0.2073 1.7868 0.074
ω 0.0000 0.0000 2.8025 0.005
α1 0.0947 0.0199 4.7605 0.000
β1 0.8701 0.0211 41.2270 0.000
Joint DCC- α1 0.0195 0.0040 4.8484 0.000
Joint DCC- β1 0.8876 0.0232 38.2811 0.000

The ADCC-GARCH model results reveal significant insights into the volatility dynamics and
asymmetries across the indices analysed. Starting with the mean return (μ), most indices exhibit
statistically significant values, albeit small, highlighting modest average returns over the analysed
period. For instance, the Nifty (μ=0.0008, p=0.002) and Metal (μ=0.0011, p=0.021) indices show notable
returns, reflecting strong market performance. In contrast, GOLD and OIL show insignificant mean
returns, indicating lower average returns or potential price stability. The AR(1) and MA(1)
coefficients are significant for Energy and Metal, suggesting a stronger short-term dependence in
returns and market adjustments in these indices, while others, like Nifty and Finance, show weaker
autocorrelations.
The conditional variance parameters (ω, α1, β1) further highlight crucial volatility dynamics. The
persistence of volatility (β1) is exceptionally high for GOLD (β1=0.9957), signalling those shocks to
GOLD's volatility decay slowly, consistent with its traditional role as a safe haven. Similarly, high
persistence is observed for OIL (β1=0.8701) and Finance (β1=0.8488), indicating prolonged volatility
effects. The significant DCC parameters (DCC-α1=0.0195, DCC-β1=0.8876) confirm dynamic
conditional correlations among the indices, suggesting that volatility transmission and time-varying
co-movements are prevalent across the assets. Energy's notable α1=0.2222 suggests it reacts more
quickly to new market information, making it sensitive to shocks. This is contrasted by GOLD, with
a minimal α1=0.002, which implies minimal responsiveness to market shocks, aligning with its low-
risk nature.
The asymmetric effect, represented by the parameter ω, provides insights into how shocks of
different signs impact the volatility of the indices. Across the results, ω is statistically significant for
Energy (p=0.009), Finance (p=0.011), GOLD (p=0.009), and OIL (p=0.005), indicating the presence of
asymmetry in these markets. This implies that negative shocks (bad news) tend to affect volatility
differently than positive shocks (good news), a characteristic often linked to investor sentiment and
market risk aversion. For example, GOLD and OIL, as commodities, exhibit significant asymmetric
effects due to their sensitivity to geopolitical events and macroeconomic uncertainties, which can
amplify volatility during adverse market conditions. Conversely, indices like Auto and Nifty show
insignificant ω values, suggesting relatively symmetric responses to shocks, which could reflect more
stable investor behaviour and reduced sensitivity to market news. These observations highlight the
diverse nature of volatility responses across asset classes, driven by their underlying economic and
market characteristics.
The analysis reveals that the asymmetric effects, as represented by the parameter ω\omega, are
significant for certain asset classes like GOLD, OIL, and Energy, indicating that negative shocks (e.g.,
adverse news or market downturns) have a more pronounced impact on volatility compared to
positive shocks. This asymmetry aligns with the leverage effect observed in financial markets, where
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bad news tends to increase perceived risk and uncertainty, leading to heightened volatility [37,38].
Commodities such as GOLD and OIL, being highly sensitive to geopolitical and macroeconomic
factors, exhibit strong asymmetric volatility responses due to their role as hedging instruments and
their dependency on external factors like supply disruptions or inflationary pressures. On the other
hand, sectoral indices like Auto and Nifty exhibit relatively symmetric behaviour, suggesting that
these markets may experience more stable investor sentiment or are better diversified against
external shocks. These findings underscore the heterogeneous nature of volatility dynamics across
asset classes, emphasising the importance of considering asymmetry when modelling risk and
making portfolio decisions.

4.5. Dynamic Hedge Ratio and Hedging Effectiveness

Table 5. Dynamic Hedge Ratio and Hedging Effectiveness.

Pair Average Hedge Ratio Hedging Effectiveness

OIL-Nifty 0.0319 0.79%
OIL-Metal 0.0970 2.63%
OIL-Finance 0.0338 -0.49%
OIL-Energy 0.0332 1.06%
OIL-Auto 0.0465 0.20%
GOLD-Nifty 0.0571 7.65%
GOLD-Metal 0.2316 17.59%
GOLD-Finance 0.0724 11.96%
GOLD-Energy 0.0790 5.52%
GOLD-Auto 0.0497 3.34%
Nifty-Metal 1.3356 87.12%
Nifty-Finance 1.1176 71.67%
Nifty-Energy 1.0377 75.36%
Nifty-Auto 0.9574 67.90%
Metal-Finance 0.3422 76.54%
Metal-Energy 0.4722 62.40%
Metal-Auto 0.3699 44.29%
Finance-Energy 0.6288 40.37%
Finance-Auto 0.6004 37.80%
Energy-Auto 0.5763 66.16%

Table 6 presents the average dynamic hedge ratios and hedging effectiveness for various asset
pairs, reflecting the ability of one asset to hedge the risk of another. Notably, Nifty exhibits high
average hedge ratios (more than one for Nifty-Metal, Nifty-Finance, and Nifty-Energy) and strong
hedging effectiveness (0.68 to 0.87), indicating its suitability as a robust hedging instrument against
these indices. In contrast, GOLD shows relatively low hedge ratios and modest effectiveness, with
GOLD-Metal (0.18) and GOLD-Finance (0.12) performing better compared to other pairs involving
GOLD. OIL, across all its combinations, has minimal hedge ratios (all below 0.1) and poor
effectiveness, suggesting limited potential as a hedge. Pairs like Metal-Finance and Metal-Energy
demonstrate moderate hedge ratios (0.34 and 0.47) and effectiveness (0.76 and 0.62), indicating better
hedging performance. Overall, indices like Nifty and Metal appear to be more effective for risk
management, while OIL and GOLD are less efficient as hedging instruments.
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The findings suggest that both GOLD and OIL exhibit limited effectiveness as hedging
instruments against Indian sectoral indices, with consistently low average hedge ratios and hedging
effectiveness. GOLD's relatively higher hedging effectiveness with Metal (0.18) and Finance (0.12)
compared to other pairs indicates some potential to mitigate sector-specific risks, likely due to its
status as a traditional safe-haven asset during periods of economic uncertainty [39]. However, its
overall weak performance across most indices highlights its limited applicability in the dynamic
Indian market. Conversely, OIL demonstrates uniformly poor hedging effectiveness and minimal
hedge ratios, reflecting its inability to offset sectoral risks effectively. This contradicts prior studies
indicating that commodities like GOLD and OIL could be used as better hedging funds than sectoral
indices [40]. On the other hand, crude OIL prices often exhibit greater volatility and weaker
correlations with equity markets, reducing their hedging potential [41]. This observation provides an
interesting aspect of the commodities market being poor in hedging ability even though they exhibit
poor correlation with the sectoral indices [30]. These results underscore the need to explore
alternative commodities or financial instruments to enhance risk mitigation strategies in sectoral
portfolios.

5. Implications
This study holds very important implications for investors, policymakers, and portfolio
managers since it reveals the weak hedging capacity of GOLD and OIL with Indian sectoral indices
in the post-COVID period. It calls for diversification strategies to take into consideration the weak
spillover effects between commodities and sectors, especially during market turbulence. Through
targeted interventions, policymakers can use these findings to understand sector-specific
vulnerabilities and improve financial market resilience. The research also highlights the importance
of dynamic hedging strategies and motivates investors to look into alternative assets or commodities
as a risk-reduction tool. This study provides a basis for further research on spillover dynamics in
emerging markets, offering a strategic framework for decision-making in volatile economic
environments.

6. Conclusions
The analysis of spillover connectedness between GOLD, OIL, and sectoral indices in India
during the post-COVID period reveals that both commodities exhibit limited and inconsistent
hedging potential. GOLD demonstrates low and stable spillovers with most sectors, indicating its
diminished role as a reliable safe-haven asset in the context of Indian markets. OIL shows relatively
higher but volatile spillover effects, particularly with sectors closely tied to energy and industrial
activities, reflecting its dependence on external economic and geopolitical factors. Overall, the
findings suggest that neither GOLD nor OIL consistently serves as an effective hedging tool for
sectoral risks in the Indian market during the recovery period, highlighting the importance of
exploring alternative hedging mechanisms or diversified approaches to risk management.

7. Limitations and Scope

This research has several limitations that should be acknowledged. Firstly, the study focuses
solely on the post-COVID period (January 2021 to December 2024), which may not capture long-term
trends or structural shifts in the market. Secondly, it examines only two commodities, GOLD and
OIL, as hedging tools, potentially overlooking other assets or instruments that may offer better
hedging potential. Additionally, the analysis is restricted to select sectoral indices, which may not
fully represent the diversity of the Indian market. The methodology, while robust, relies on specific
model assumptions, such as the Diebold-Yilmaz Spillover Index, which may not account for all
complexities of financial spillovers. Lastly, external factors such as regulatory changes, geopolitical
events, and macroeconomic shocks, which can significantly influence market dynamics, are not
explicitly incorporated into the analysis.
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Future studies could expand the scope by exploring additional commodities, such as silver or
cryptocurrency, to assess their hedging potential against sectoral indices. Additionally, investigating
the impact of external factors, such as geopolitical risks, interest rate changes, or policy interventions,
would enhance the contextual understanding of market interactions. As such comparative analysis
across multiple emerging markets could also offer valuable insights into regional variations in
hedging and connectedness.

Author Contributions: For research articles with several authors, a short paragraph specifying their individual
contributions must be provided. The following statements should be used “Conceptualization, N.M. and A.K.P.;
methodology, software, N.M.; validation, N.M., and S.K.C.; formal analysis, N.M.; investigation, A.K.P.;
resources, data curation, S.K.C.; writing—original draft preparation, writing—review and editing, N.M.;
visualisation, S.K.C.; supervision, A.K.P.; project administration, N.M.; All authors have read and agreed to the
published version of the manuscript.

Funding: This research received no external funding.

Conflicts of Interest: The authors declare no conflicts of interest.

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