Evaluating the dynamic connectedness of financial assets and bank indices during black-swan events: A Quantile-VAR approach

Abstract

This study examines whether precious metals, industrial metals, energy and agricultural commodities, or cryptocurrencies form trustworthy safe havens against extreme price volatility of major global bank stock indices during black-swan events such as the COVID-19 pandemic and the Russia–Ukraine conflict. Using daily data and applying Quantile-VAR dynamic pairwise and extended joint connectedness methodologies, we investigate dynamic connectedness between major financial assets and major bank indices during exceptional crises. Findings provide evidence that crude oil and both Ethereum and Bitcoin present evidence of propagating significant shocks towards bank stock indices during crises, but other large-cap cryptocurrencies present no evidence of any specific influence. Further, gold, natural gas, and wheat are identified as the main absorbers of spillovers from banking indices during analysed crises, with more pronounced effects identified during exceptional phases of volatility. Such findings suggest that risk in the banking sector can be efficiently hedged by traditional safe havens such as gold and counterbalanced by highly outperforming assets such as natural gas and wheat. The study significantly contributes to understanding the interplay between banking sectors and various financial assets during crises and the subsequent strategies available for managing systemic risks, providing valuable insights for policymakers, regulators, and investors alike.