International Commodity Market and Stock Volatility Predictability : Evidence from G7 Countries

The numerous literatures have recorded the closely connection across commodity and stock markets. This study empirically examines the role of 7 metal commodities (gold, silver, aluminum, plumbum, copper, zinc and nickel) in predicting G7 stock volatility. The results of individual factor analysis reveal that the gold and silver can outperform peers in terms of statistical and economic evaluation methods. To extract the comprehensive predictive content, we further explore the forecasting performance of combination forecast, dimension reduction and shrinkage methods. Furthermore, our empirical results suggest that the commodity volatility information can transmit to the international equity markets from the ratio of gold to platinum prices (GP) and the ratio of silver to platinum prices (SP) channel