Dynamic connectedness among market volatilities: a perspective of COVID-19 and Russia-Ukraine conflict

Abstract

PurposeThis paper aims to investigate the dynamic volatility connectedness among 13 G20 countries by using the volatility indices.Design/methodology/approachThe connectedness approach based on the time-varying parameter vector autoregression model has been used to investigate the linkage. The period of study is from 1 January 2014 to 20 April 2023.FindingsThis analysis revealed that volatility connectedness among the countries during COVID-19 and Russia–Ukraine conflict had increased significantly. Furthermore, analysis has indicated that investors had not anticipated the World Health Organization announcement of COVID-19 as a global pandemic. Contrarily, investors had anticipated the Russian invasion of Ukraine, evident in a significant rise in volatility before and after the invasion. In addition, the transmission of volatility is from developed to developing countries. Developed countries are NET volatility transmitters, whereas developing countries are NET volatility receivers. Finally, the ordinary least square regression result suggests that the volatility connectedness index is informative of stock market dynamics.Originality/valueThe connectedness approach has been widely used to estimate the dynamic connectedness among market indices, cryptocurrencies, sectoral indices, enegy commodities and metals. To the best of the authors’ knowledge, none of the previous studies have directly used the volatility indices to measure the volatility connectedness. Hence, this study is the first of its kind that has used volatility indices to measure the volatility connectedness among the countries.