An Investigation on the Effect of Covid-19 and Russo-Ukraine War on the Connectedness Between Commodity Price and Industrial Stock Return Using the Spillover Index

This paper analyzes the effect of commodity prices on the industrial stock market. The commodities selected to represent raw materials are crude oil, copper, and corn. Kospi and six industrial stock price indices including foods, chemical, steel, machinery, electronic, and transport are analyzed. The exchange rate is also included in the model. Test period is 1,257 trading days from September 5, 2017 to December 23, 2022. Spillover effect is measured with Diebold and Yilmaz (2009, 2012)’s index. Major findings are as follows. First, the influential markets to stock and foreign exchange markets are copper and crude oil markets. Second, the stock market which was a contributor to information before Covid-19 changed role to the recipient of information during the Covid-19 and Russo-Ukraine war period. Third, the effect of crude oil and corn on Kospi returns caused by the Covid-19 is increased. And the effect of copper is increased during the Russo-Ukraine war period. Fourth, the stock returns of electronic, chemical and steel industries have high connectedness with the commodity market compared to that of foods, machinery and transport industries. Fifth, the total spillover index appears high in all industries during the Covid-19 and Russo-Ukraine war period compared to pre-Covid-19 period.