Dynamic spillovers between precious metals and travel & tourism stocks in South-East Asia: do infectious disease outbreaks matter?

Abstract

The interconnection between travel and leisure industry and precious metals markets has attracted a lot of interest among investors, policy makers, practitioners and market participants. We investigate the role of infectious diseases-based uncertainty on the dynamic connectedness between Southeast Asia travel and tourism stocks indices and four major precious metals namely; gold, silver, palladium, and platinum over the period 31 March 2015 to 5 February 2021. We adopt the time-varying parameter vector autoregressions (TVP-VAR) and the nonparametric causality-in-quantiles approach for its methodological superiority over linear approaches in capturing the presence of causality at different quantiles of the commodity distribution. The following is discernible from our analyses. First, we find strong spillovers between the two markets, implying there are diversification options. Second, silver and platinum are best effective portfolio diversification tools among precious metals. Third, strong evidence of nonlinearity makes it crucial for consideration when examining the role of diseases-based uncertainty in affecting the interactions between travel and tourism stocks and metals markets. Lastly, connectedness between uncertainty due to infectious diseases and the markets is stronger mostly around the lower and normal quantiles. These results have important policy implications for policymakers and market participants.