Emerging market riskiness and uncertainty spillovers: Evidence from the COVID-19 pandemic

Purpose This study aims to examine the uncertainty spillover among eight important asset classes (cryptocurrencies, US stocks, US bonds, US dollar, agriculture, metal, oil and gold) using weekly data from 2014 to 2020. This study also examines the US macro uncertainty and US financial stress spillover on these assets. Design/methodology/approach The authors use time–frequency connectedness method to study the uncertainty spillover among the asset classes. Findings This study’s findings revealed that the uncertainty spillover is time-varying and peaked during the 2016 oil supply glut and COVID-19 pandemic. US stocks are the highest transmitter of uncertainty to all other assets, followed by the US dollar and oil. US stocks (US dollar and oil) transmit uncertainty in long (short) term. Furthermore, US macro uncertainty is the net transmitter of uncertainty to the US stocks, industrial metals and oil markets. In contrast, US financial stress is the net transmitter of uncertainty to the US bonds, cryptocurrencies, the US dollar and gold markets. US financial stress (US macro uncertainty) has long (short)-term effects on asset price volatility. Originality/value This study complements the studies on volatility spillover among the important asset classes. This study also includes recently financialized asset classes such as cryptocurrencies, agricultural and industrial commodities. This study examines the macro uncertainty and financial stress spillover on these assets.

We propose an approach for jointly measuring global macroeconomic uncertainty and bilateral spillovers of uncertainty between countries using a global vector autoregressive (GVAR) model. Over the period 2000Q1–2020Q4, our global index is able to summarize a variety of uncertainty measures, such as financial-market volatility, economic-policy uncertainty, survey-forecast-based measures and econometric measures of macroeconomic uncertainty, showing major peaks during both the global financial crisis and the COVID-19 pandemic. Global spillover effects are quantified through a novel GVAR-based decomposition of country-level uncertainty into the contributions from all countries in the global model. We show that this approach produces estimates of uncertainty spillovers which are strongly related to the structure of the global economy.

Monetary policy and uncertainty spillovers: Evidence from a wavelet and frequency connectedness analysis

Do commodity markets catch a cold from stock markets? Modelling uncertainty spillovers using Google search trends and wavelet coherence

ABSTRACTThis study measures financial uncertainty for two classes of alternative financial assets (Dow Jones Islamic and Dow Jones Sustainability Indexes) and the conventional US stock market (Dow Jones Industrial Index) for the period of 1999–2017, using an asymmetric exponential GARCH model. Using an ARDL model, we propose an intertemporal dynamic analysis of uncertainty for Islamic and socially responsible stock markets. Our findings show that, first, conventional and ethical investments present high comparable levels of uncertainty for which the dynamics is time-varying. Second, uncertainty in the conventional US stock market has a significant and positive effect on the uncertainty in alternative stock markets. Thus, uncertainty characterizes conventional and ethical stock markets both in the short and long terms. In particular, while the short-term uncertainty of ethical markets might be associated with their characteristics, the long-term aspect of uncertainty for ethical funds is rather associated with the effect of the conventional stock market environment. Although these findings show mean-reversion and uncertainty spillovers from the alternative stock markets to the conventional US one, they suggest lack of safety and certainty for investments in ethic markets, which remain fragile and closely dependent on the conventional market.

Securitization of the agricultural commodity market has accelerated since the beginning of the 21st century, particularly in the times of financial market uncertainty and crisis. Sugar belongs to the group of important agricultural commodities. The global financial crisis and the COVID-19 pandemic has caused a substantial increase in the stock market volatility. Moreover, the novel coronavirus hit both the sugar market’s supply and demand side, resulting in sugar stock changes. The paper aims to assess potential structural changes in the relationship between sugar prices and the financial market uncertainty in a crisis time. In more detail, using sequential Bai–Perron tests for structural breaks, we check whether the global financial crisis and the COVID-19 pandemic have induced structural breaks in that relationship. Sugar prices are represented by the S&P GSCI Sugar Index, while the S&P 500 option-implied volatility index (VIX) is used to show stock market uncertainty. To investigate the changes in the relationship between sugar prices and stock market uncertainty, a regression model with a sequential Bai–Perron test for structural breaks is applied for the daily data from 2000–2020. We reveal the existence of two structural breaks in the analysed relationship. The first breakpoint was linked to the global financial crisis outbreak, and the second occurred in December 2011. Surprisingly, the COVID-19 pandemic has not induced the statistically significant structural change. Based on the regression model with Bai–Perron structural changes, we show that from 2000 until the beginning of the global financial crisis, the relationship between the sugar prices and the financial market uncertainty was insignificant. The global financial crisis led to a structural change in the relationship. Since August 2008, we observe a significant and negative relationship between the S&P GSCI Sugar Index and the S&P 500 option-implied volatility index (VIX). Sensitivity analysis conducted for the different financial market uncertainty measures, i.e., the S&P 500 Realized Volatility Index confirms our findings.

This research was conducted to examine the extent to which market uncertainty can encourage market players, especially SMEs, to exploit innovation and environmentally friendly orientation to improve their performance. From a supply chain perspective, market uncertainty, which in this study is proxied by the Covid-19 pandemic, has great potential to reduce performance and disrupt production and distribution lines as well as consumer demand. This encourages affected SMEs, such as SMEs that focus on providing tourism products, such as fashion and merchandise, to maintain their performance with product innovation, and minimize the use of non-environmentally friendly products. The object of research is Small and Medium Enterprise (SME) producing tourism souvenirs in Yogyakarta, Indonesia. Using the analysis technique of Structural Equation Modeling (SEM) with 150 respondents, the findings indicate that market uncertainty serves as a catalyst for SMEs to maintain performance through marketing innovation and product reorientation. Specifically, the results show that there is a positive and significant influence between innovation and green orientation on SME performance, and the mediating effect of market uncertainty to increase marketing innovation and environmentally friendly orientation. These findings theoretically contribute to explaining the relationship between supply chain management in the context of market uncertainty. In practical terms, this study confirms the need for support by stakeholders to support limited domestic tourism, according to health protocols, as well as digitalization of marketing for tourism SMEs.

In this study we examine the time-varying causal effect of the novel COVID-19 pandemic in the major oil-importing and oil-exporting countries on the oil price changes, stock market volatilities and the economic uncertainty using the wavelet coherence and network analysis. During the period of the pandemic, we explore such relationship by resorting to the wavelet coherence and gaussian graphical model (GGM) frameworks. Wavelet analysis enables us to measure the dynamics of the causal effect of the novel covid-19 pandemic in the time–frequency space. Regarding the findings displayed herein, we first found that the COVID-19 pandemic has a severe influence on oil prices, stock market indices, and the economic uncertainty. Second the intensity of the causality effect is stronger in the longer horizon than in the short ones, suggesting that the causality exercise continues. Our findings also provide evidence that the COVID-19 pandemic and oil price changes in oil-importing countries mirror those in oil-exporting countries and vice versa. Further, the COVID-19 pandemic has a profound immediate time–frequency effect on the US, Japanese, South Korean, Indian, and Canadian economic uncertainties. A better understanding of oil and stock market prices in the oil-importing and oil-exporting countries is vital for investors and policymakers, specially since the novel unprecedented COVID-19 crisis has been recognized among the most serious ever happened. Thus, the findings suggest that the authorities should strongly take efficient actions to minimize risk.

This paper estimates the comovement between two leading cryptocurrencies and the G7 stock markets. It then attempts to explain the comovement with the rational investment theory by examining whether it is driven by market uncertainty measures, public attention to COVID-19, and the government’s containment and health responses to COVID-19. Wavelet Coherence heatmaps show that the stock-cryptocurrency comovements increase significantly and positively during the pandemic, indicating that cryptocurrencies lose their safe haven properties against stocks during the heightened market uncertainties. Over the longer investment horizons, Bitcoin reemerges as a safe haven or strong hedger while Ethereum’s properties weaken. Seemingly Unrelated Regression results reveal that the stock-cryptocurrency comovements are rationally explained by market uncertainties, government responses to COVID-19, and market fundamentals. However, the comovements are also driven by the fear of COVID-19 to a certain extent. Our findings offer valuable insights for investors considering cryptocurrencies to rebalance their equity portfolios during market distress. For policymakers, the Economic Policy Uncertainty (EPU) results suggest that government policies and regulatory frameworks can be used to regulate speculation and investment activities in the cryptocurrency market.

Fair value (FV) means the market value of an asset, which can be observed directly (Level 1), or indirectly (Level 2). In some cases, the FVs are not observable in the market and managers of companies estimate the valuation internally using statistical models based on the best information available. These are known as Level 3 FV. The measurement uncertainty is the highest for Level 3 FVs as they rely on managerial discretion, creating concerns about their representational faithfulness and relevance among auditors and investors. This concern is likely to be heightened in the wake of market uncertainty during 2020 caused by the COVID pandemic. Regulators (e.g., ASIC) suggested that disclosing supplementary information (i.e., beyond the minimum required by regulation) on FV can help mitigate such concerns. In this study, I examine the relevance of supplementary disclosures intended to improve the representational faithfulness and relevance of Level 3 FV by investigating their impacts on audit fees and investors’ valuation in the uncertain market condition of 2020. My sample comprises Level 3 investment properties held by Australian real estate companies. I find that managers of real estate companies increased supplementary FV disclosures during 2020. I document a negative association between supplementary disclosures and audit fees, implying that disclosures reduce the audit risk effect by signalling higher transparency. However, I find no incremental impact of disclosures on audit fees during the pandemic. Additionally, I find that investors’ pricing of FV increased with the increase in disclosures during the market uncertainty of 2020, while in the pre-uncertainty period, their pricing influence was not significant. The findings of this study inform regulators and other financial reporting stakeholders about the role of supplementary FV disclosures in mitigating the perceived audit risk for auditors and the faithful representation concerns for investors in a distressed market environment.

PurposeConcerns relating to the representational faithfulness and, consequently, the relevance of fair value (FV) estimates are likely to be heightened in the wake of market uncertainty caused by the COVID pandemic. Therefore, this paper aims to study the relevance of supplementary disclosures intended to improve the representational faithfulness of FV estimates by examining their impacts on audit fees and investors’ valuation of FV adjustments in the uncertain market condition of 2020.Design/methodology/approachThe sample is comprising Australian real estate firms. The authors develop both weighted and unweighted disclosure indices based on supplementary disclosures related to Level 3 FVs under IFRS 13 Fair Value Measurement. The authors measure the levels of disclosure by the sample firms based on these indices from 2018 to 2020 and ascertain their effects on audit fees and the market value of FV adjustments on investment properties.FindingsThe authors find that real estate firms increased supplementary FV disclosures during 2020. The authors document a negative association between supplementary disclosures and audit fees, although the authors find no incremental impact of disclosures on audit fees during the pandemic. Additionally, the authors find that investors’ pricing of FV adjustments increased with the increase in disclosures during the market uncertainty of 2020, while in the pre-uncertainty period, their pricing influence was not significant.Originality/valueThe findings extend the understanding of the role of supplementary disclosures on Level 3 investment properties in mitigating the perceived audit risk for auditors and the faithful representation concerns for investors in a distressed market environment.

The capacity of enterprises to access finance is intrinsically linked to their long-term sustainability. The efficient allocation of financial resources across society increases the utilization of social assets. Initial public offerings (IPOs) represent a highly effective mechanism for generating capital to support the growth and development of firms. The paper thus examines the impact of financial crises, specifically the 2008 financial crisis and the Covid-19 pandemic, on IPO pricing in the Chinese stock market. In this paper, pre-crisis and post-crisis IPO data are analyzed to identify trends and changes in underpricing. Statistical methods are used to examine the relationship between market conditions, economic indicators and IPO characteristics. The results show that IPO underpricing decreased significantly after the 2008 financial crisis due to increased market caution and regulatory changes, while the COVID-19 pandemic led to an increase in market uncertainty and volatility, which led to an increase in underpricing. These insights are significant for investors, companies planning initial public offerings, and policymakers aiming to stabilize financial markets during economic downturns.

The purpose of this research is to explore how investor attention, measured by GSVI, influences cryptocurrency market behavior under varying conditions. For this the study examines the impact of Google Search Volume Index (GSVI) on cryptocurrency returns, considering market uncertainty, news sentiment, and the COVID-19 pandemic. A regression analysis was conducted using datasets covering BNB, Bitcoin, Dogecoin, Solana, and Tether from 2015 to 2022. Stata was used to estimate the relationships between cryptocurrency returns and key variables, ensuring accurate and reliable results to quantify the relationships. Our findings indicate that abnormal increases in GSVI positively affect cryptocurrency returns, particularly during high uncertainty periods and when news sentiment is favorable. Moreover, the effect of investor attention on returns was significantly amplified during the COVID-19 pandemic, suggesting that global crises has heightened the role of behavioral factors in cryptocurrency markets. This research contributes to the literature by integrating investor attention with uncertainty and sentiment measures, offering a comprehensive view of cryptocurrency price dynamics. Unlike previous studies that examine these factors in isolation, our study highlights their combined effect, providing valuable insights for investors, policymakers, and analysts in understanding market trends and decision-making strategies.

Natural resources commodity prices volatility: Evidence from COVID-19 for the US economy

Metallic natural resources commodity prices volatility in the pandemic: Evidence for silver, platinum, and palladium