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Introduction
Over the past decade, commodities have become popular assets for portfolio investors, just like bonds and stocks. The process of financialization of commodity markets, resulting from the increasing presence of financial investors in commodity markets, experienced a synchronized boom-bust cycle in 2007–2008 subprime crisis where the price volatility of many commodities spiked. As a result, an extensive literature having discussed the relationship between commodity markets’ financialization, financial activity and the real economy emerged [15, 18, 27, 28, 29–30, 40, 48, 54, 71, 82, 83], etc.).
More recently, in 2019, the world was expecting an economic crisis due to the protectionist war between the United States of America and China when the coronavirus pandemic crisis plunged the world economy into an embarrassing economic situation. Initially, the COVID-19 virus was largely ignored as it spread through its epicenter of Wuhan, China. On February 11, 2020, COVID-19 was declared a global pandemic by the World Health Organization (WHO), triggering stress and uncertainty in global markets. Equities plummeted as market volatility spiked around the world. According to the Economic Times Journal, the coronavirus pandemic and the associated restrictions clearly had a discernable effect on financial markets.
In a nutshell, the advent of the COVID-19 pandemic has caused significant disturbances to global financial and oil markets. The global financial markets reacted relatively moderately as the virus spread, first to the Middle East and then to Europe, fueling fears of a global pandemic. Stock markets values then plunged during the crisis. Dow Jones, NASDAQ 100, and S&P 500 share prices declined on average by 0.56%, 0.27% and 0.53%, respectively, between March 11th and March 31st, 2020.
Moreover, the decline in the demand for crude oil, combined with the Saudi–Russian oil price war, had an instant effect on financial and economic activity, with it being exposed to supply and demand shocks simultaneously. The price per a barrel for the West Texas Intermediate (WTI) dropped drastically from $63.05 on December 30th, 2019 to just $21.55 on March 21st, 2020. On April 21st, 2020, WTI price recorded a negative price of $36.98 per barrel, falling from $18.31 per barrel the previous day. Similarly, Brent crude oil price fell by 47.47% in the same period.
Regardless of whether the economy is oil-importing or exporting,...