Exploring the dynamic connectedness of currencies among BRICS+ nations: implications for financial stability and global economic integration

Dynamic connectedness, portfolio performance, and hedging effectiveness of the hydrogen economy, renewable energy, equity, and commodity markets: Insights from the COVID-19 pandemic and the Russia-Ukraine war

Oil prices volatility and economic performance during COVID-19 and financial crises of 2007–2008

Purpose This study analyses the impact of the Covid-19 on stock market performance of BRICS nations together. BRICS countries comprise almost 30% of the global GDP and around 50% of the world’s economic growth. As BRICS nations have gained the attraction as financial investment destinations, their financial markets have apparently been as potential opportunities for foreign portfolio investors. While there is extensive research on the impact of the Covid-19 pandemic on individual economies and global financial markets, this paper is among the first to systematically investigate the dynamic connectedness of these emerging economies during the pandemic using the Time-Varying Parameter Vector Autoregressions (TVP-VAR) approach. Design/methodology/approach We categorise our data into two distinct periods: the pre-Covid period spanning from January 1, 2018, to March 10, 2020, and the Covid crisis period extending from March 11, 2020, to June 4, 2021. To achieve our research objectives, we employ the Time-Varying Parameter Vector Autoregressions (TVP-VAR) approach to assess dynamic connectedness. Findings Our findings reveal that among the BRICS nations, Brazil and South Africa serve as net transmitters of shocks, while China and India act as net receivers of shocks during the Covid crisis. However, the total connectedness index (TCI) has exhibited a notable increase throughout this crisis period. This paper makes several notable contributions to the academic literature by offering a unique focus on BRICS economies during the Covid-19 pandemic, providing practical insights for stakeholders, emphasising the importance of risk management and investment strategy, exploring diversification implications and introducing advanced methodology for analysing interconnected financial markets. Research limitations/implications The results have important implications for the investors, the hedge funds, portfolio managers and the policymakers in BRICS stock markets. The investors, investment houses, portfolio managers and policymakers can develop investment strategies and policies in the light of the findings of this study to cope up the future pandemic crisis. Originality/value This study is one of its kind that examines the dynamic connectedness of BRICS with recently developed TVP-VAR approach across pandemic crisis.

The Russian economy is emerging, meaning that natural resources play a dominant role in economic development. Given the considerable volatility in resource prices, we investigate the volatility spillovers among policy uncertainty, international oil prices, exchange rate, stock index and metal prices covering the period of 2 July 2008 to 15 May 2020 for the Russian economy applying Dynamic Connectedness based on Time-Varying Parameter Vector Autoregression (TVP-VAR). Our empirical investigation demonstrates that gold price, Russian policy uncertainty, oil price and stock index are net volatility contributors, whereas palladium, platinum, silver and exchange rate are net volatilities receivers. Market capitalisation and silver market are found to be the highest net contributor and net receiver, respectively. The palladium appears as a net volatility receiver initially, just after the global financial crisis. The Russian economic policy uncertainty appears to be the dominant volatility contributor from 2008 to 2014, but onward it turned to be a net volatility receiver. Over the year 2014, gold price was the prominent volatility contributor to another market when the oil price dropped significantly. The total connectivity of the markets are highly anchored with several exogenous shocks, including economic sanction, adoption of floating exchange rate, oil price plunge. Our empirical findings provide several policy implications to portfolio managers and Russian regional stakeholders.

This study examines how international monetary policy shocks from developed economies impact emerging market currencies, focusing on interconnectedness and spillovers. Using a time-varying parameter vector autoregressive (TVP-VAR) model, the study analyzes daily exchange rate data for USD currency pairs from six emerging markets (India, Brazil, Russia, South Africa, Thailand, and Indonesia) from January 1, 2001, to May 31, 2023. Results show that the South African Rand (ZAR) is the largest transmitter of return shocks (13.25%), while the Russian Ruble (RUB) is the largest transmitter of volatility shocks (6.48%). The Indian Rupee (INR), Indonesian Rupiah (IDR), and Thai Baht (THB) are significant receivers of shocks. Increased interconnectedness is observed during economic crises, such as the Global Financial Crisis and the COVID-19 pandemic. Emerging market currencies are highly interconnected and sensitive to global financial shocks, emphasizing the need for proactive monetary policies to mitigate international spillovers and maintain financial stability. Central banks in emerging economies should continuously monitor global financial dynamics and adopt macroprudential measures to enhance policy credibility and institutional strength, thereby mitigating the adverse effects of external shocks on domestic economies.

Cryptocurrency has gained increasing prominence in the recent past with its increased integration with established financial markets like stock markets, currency markets and so on. This study examines the integration of cryptocurrency and the Indian stock market. By employing time-varying parameter-vector autoregression (TVP-VAR), the study analyses the daily closing data of Sensex, Nifty 50, Bitcoin and Ethereum over a 41-month period from 1st April 2020 to 31st August 2023 to find out the total connectedness, pairwise connectedness and to identify the net receivers and transmitters. The findings reveal a moderate unidirectional transmission from the cryptocurrency market to the stock market, thereby confirming cryptocurrencies as net transmitters and stock market indices as net receivers. This study is of relevance to policymakers in devising an appropriate cryptocurrency regulatory framework and to investors in designing better portfolios.

This study examines the connectedness in returns and volatility between industrial and rare earth metals during the COVID-19 pandemic and the Russia–Ukraine conflict. For this purpose, we collected daily prices of six industrial and eight rare earth metals from June 16, 2014 to October 31, 2024, and employed the Time-Varying Parameter Vector Autoregression (TVP-VAR) approach. The findings reveal strong returns connectedness between industrial and rare earth metals in the COVID-19 pandemic and the Russia–Ukraine conflict, compared with the pre-COVID-19 pandemic. Moreover, among all metals, copper is the only metal that consistently transmits shocks in returns to the network of other metals, whereas DRM, CRM, nickel and lead consistently receive shocks in returns from other metals in the system. It implies that these four metals have observed most of the market shocks and act as safe-haven assets. It is important to note that BGM acts as a strong net transmitter during COVID-19 and acts as a strong net receiver in the Russia–Ukraine conflict. However, volatility connectedness is weak during the COVID-19 pandemic and the Russia–Ukraine conflict compared with pre-COVID-19 periods, implying that portfolio diversification opportunities exist in both crises. Furthermore, NDM is the only metal that acts as a net transmitter of volatility shocks, whereas zinc, tin, nickel, lead and copper act as net receivers of volatility shocks. These five metals absorbed most of the volatility shocks and act as a safe haven asset in the COVID-19 and the Russia–Ukraine conflict. The bivariate portfolio analysis shows that during COVID-19, the decrease in hedge ratios highlights the difficulty in establishing effective hedges. Interestingly, the increase in hedge ratios during the Russia–Ukraine conflict implies hedging opportunities. The findings of this study have important implications for investors and portfolio managers in managing portfolio risk through hedging and diversifying investment portfolios during periods of economic turmoil.

This study examined the connectedness and propagation of risk in the South African equity sectors during the Global Financial Crisis (GFC), the European Debt Crisis (EDC), the US–China trade war, and the COVID-19 pandemic. Daily returns of nine Johannesburg Stock Exchange (JSE) super sectors were examined from 3 January 2006 to 31 December 2021. Applying the connectedness matrix and time-varying parameter vector autoregressive (TVP-VAR) model, in full sample and sub-periods, the study showed that dynamic total connectedness of the super sectors is high in absolute form (62%). Furthermore, it was found that the highest volatility connectedness was during the EDC (68.83%) and during the COVID-19 pandemic (68.57%), followed by the GFC (63.16%) and lastly the US–China trade war (42.09%), respectively. This suggests that the tendency for a systemic risk is highest during the EDC, COVID-19, and GFC periods, and lowest during the US–China trade war. The financial sector was the primary net-transmitter of shocks during the COVID-19 period, while the automobile and parts sector was the strongest net-transmitter of shocks during the GFC, EDC, and US–China trade war. Similarly, the strongest net recipient of shocks during GFC, EDC, and COVID-19 is the chemical super sector. The study concludes that there is a significant volatility connectedness among JSE super sectors. In addition, the JSE super sectors exhibit time-varying connectedness during extreme events. Moreover, the net-transmitter and net-receiver of shock do not change significantly during different crisis periods. The policy implications of the findings are highlighted in the concluding section.

PurposeThe study analyzes return spillovers among key financial markets, including equity indices (NIFTY50, NIKKEI225, KOSPI, ASX200, Shanghai-Composite and Hang-Seng), exchange rates (USD-INR, USD-YEN, USD-WON, USD-AUD and USD-RNMB) and Brent crude oil prices (Brent) in the Asia-Pacific region as well as the NASDAQ index from the US market.Design/methodology/approachThis study utilizes the time-varying parameter vector autoregressive (TVP-VAR) connectedness approach to analyze the return spillovers in the Asia-Pacific region covering the period from March 2, 2005 to February 29, 2024.FindingsThe findings reveal that NASDAQ and NIFTY50R are significant transmitters of financial shocks, exerting a strong influence on other markets. In contrast, the Shanghai Composite Index and the South Korean Won act as net receivers, indicating their vulnerability to external influences. The interconnectedness between Brent crude oil prices and regional financial markets underscores the impact of global commodity price fluctuations on the financial stability of energy-dependent economies.Practical implicationsThe study shows heightened interconnectedness during global financial crises, suggesting that market shocks can propagate more intensely across interconnected systems during such periods. These insights contribute to a better understanding of financial spillovers and highlight the need for effective risk management and policy coordination in the Asia-Pacific region.Originality/valueThe TVP-VAR connectedness approach is deployed to analyze return spillovers among key financial markets, including equity indices, exchange rates and Brent crude oil prices in the Asia-Pacific region as well as the NASDAQ index from the US market.Research highlights(1)We analyze return spillovers among key financial markets indicators in the Asia-Pacific region.(2)The analysis covers the period from March 2, 2005, to February 29, 2024.(3)The findings reveal that NASDAQ and NIFTY50R are significant transmitters of financial shocks, exerting a strong influence on other markets.(4)The study shows heightened interconnectedness during global financial crises, suggesting that market shocks can propagate more intensely across interconnected systems during the study periods.(5)We find a better understanding of financial spillovers and highlight the need for effective risk management and policy coordination in the Asia-Pacific region.

An application of a TVP-VAR extended joint connected approach to explore connectedness between WTI crude oil, gold, stock and cryptocurrencies during the COVID-19 health crisis

This paper analyses the dynamic transmission mechanism of volatility spillovers between key global financial indicators and G20 stock markets. To examine volatility spillover relations, we combine a bivariate GARCH-BEKK model with complex network theory. Specifically, we construct a volatility network of international financial markets utilising the spatial connectedness of spillovers (consisting of nodes and edges). The findings show that spillover relations between global variables and G20 markets vary significantly across five identified sub-periods. Notably, networks are much denser in crisis periods compared to non-crisis periods. In comparing two crisis periods, Global Financial Crisis (2008) and COVID-19 Crisis (2020) periods, the network statistics suggest that volatility spillovers in the latter period are more transitive and intense than the former. This suggests that financial volatility spreads more rapidly and directly through key financial indicators to the G20 stock markets. For example, oil and bonds are the largest volatility senders, while the markets of Saudi Arabia, Russia, South Africa, and Brazil are the main volatility receivers. In the former crisis, the source of financial volatility concentrates primarily in the USA, Australia, Canada, and Saudi Arabia, which are the largest volatility senders and receivers. China emerges as generally the least sensitive market to external volatility.

Dynamic spillover effects in futures markets: UK and US evidence

Volatility interconnectedness among financial and geopolitical markets: Evidence from COVID-19 and Ukraine-Russia crises

Background: This article adds to scarce sub-Saharan African and South African literature on monetary policy transmission mechanisms by looking into: (1) the Keynesian interest rate channel of monetary policy transmission in South Africa, focussing on the behaviour of household credit and household consumption; (2) using the time-varying parameter vector autoregressive (VAR) techniques with stochastic volatility to capture the time-varying nature of the underlying structure of the South African economy to see whether it performs better than the constant parameter VAR in so doing and (3) policy implications emerging from the findings of the study.Aim: In testing the hypotheses of the interest rate channel of monetary policy transmission, the aim is to see how household credit and ultimately household consumption have evolved in South Africa: (1) before inflation targeting (1994–1999), (2) after inflation targeting (2000–2007) and (3) during the global financial crisis (2007–2012) in response to different monetary policy positioning.Setting: We focus on three periods: post transition from apartheid, during inflation targeting and during the global financial crisis, periods which saw changes in the monetary policy stance in South Africa.Methods: Quarterly data from 1994Q1 to 2012Q4, constant parameter VAR and time-varying parameter vector autoregressive (TVP-VAR) techniques are used in this study. The use of the TVP-VAR is to capture the time-varying nature of the underlying structure of the South African economy and also to investigate whether it performs better than the constant parameter VAR in so doing.Results: The results show that household credit and consumption declined and stayed negative post transition and after inflation targeting – periods of monetary tightening in South Africa - but increased during the global financial crisis, which saw expansionary monetary policy measures aimed at mitigating the negative output gap in South Africa.Conclusion: These changes in household credit and consumption across the different time periods show evidence of the cost of credit effect of monetary policy on household consumption in South Africa. They further reflect the impact of different structural changes and exogenous shocks on monetary policy conduct in South Africa and its pass through effect on household consumption in South Africa. We further conclude that the time TVP-VAR with stochastic volatility performs better than the constant parameter VAR in capturing the time-varying nature of the underlying structure of the South African economy.

This study examines the connectedness among oil commodity prices (OP), the two important representative measures of uncertainty, economic policy uncertainty (EP) and geopolitical risk (GP), their interaction (EPG), and the exchange rate returns of oil-exporting and oil-importing expanded BRICS economies. Using data from January 1997 to June 2023, we adopt the time- and frequency-based connectedness approach to investigate whether the interrelationships inherent in the network of variables exhibit dynamics across time and frequency domains. The results reveal that the average total connectedness index is relatively higher for oil-importing economies compared to oil-exporting countries, while the observed connectedness is predominantly long-term for oil-importing countries, contrasting with the more short-term-driven connectedness for oil-exporting economies. Peak events observed during critical global events such as the early 2000s bubble burst, the Global Financial Crisis, and the COVID-19 pandemic are noted for both oil-exporting and oil-importing countries. It is further observed for the oil exporters that OP is a net recipient of shocks from EP and EPG, while it transmits shock spillovers to Ruble, Rial, Real, and Dirham. EP and GP indexes act as both net transmitters and recipients, primarily driven by long-term dynamics. Additionally, the exchange rates of the Dirham exhibit heterogeneous tendencies, functioning as a net transmitter in the short term and a net receiver in the long term across the sample. For oil-importing countries, the Renminbi and Peso consistently emerge as net receivers of spillovers. OP is primarily a net receiver, while EP, GP, and EPG are net transmitters. Our results have implications for investors and policymakers.