Financial contagion between the financial and the mining industries – Empirical evidence based on the symmetric and asymmetric CoVaR approach

Abstract In globalised economies, the extent, intensity and speed of the spreading of economic crises are rapidly growing. This increases the risk of doing business on a macro- and microeconomic scale. Prevention of the negative consequences of cumulative crises requires a careful study of the mechanisms of their emergence and dissemination. The main purpose of the article is to identify the contagion effect between the financial and mining sectors in eight countries, in which the raw materials industry plays an important role in economic development (Australia, Canada, China, India, Russia, South Africa, the UK and the USA). Until now, research in this area has rarely been carried out. Our results allow to indicate the direction and time distribution of cross-sectoral contagion using symmetric and asymmetric CoVaR. The research period covered the years 2008–2019, divided into three four-year time windows (2008–2011, 2012–2015, 2016–2019). The analysis was conducted at the level of both entire markets and individual entities. For “entire markets” we used the Thomson Reuters (ThR) or FTSE stock market industry indices (banking and mining), depending on the availability of the index in the ThR database. In the case of the “individual level”, the research sample comprised of three out of ten of the largest (in terms of market value at the end of 2018) banks (or bank holding companies) and mining enterprises in each country, for which stock quotations were available in the ThR database. The conclusions of the research indicate the strong impact of financial crises on the mining industry, which suggests that the banking sector was a source of financial contagion for the mining sector. In addition, our results indicate the possibility of reversing the direction of the contagion effect in the case of economies, where the raw material industry plays a strategic role and is an important determinant of economic growth. The results obtained contribute to the economics of resources and can be used in forecasts regarding the spread of crises in the financial and mining industries. Proper recognition of the direction and time distribution of the contagion effect may also be useful when selecting macro- and microeconomic tools of anti-crisis policy.