Abstract
This study investigates the extreme time-frequency return connectedness between ten U.S. sectors and commodities from January 2014 to May 2023. Using quantile time-frequency measures, we find the following: Firstly, the total connectedness estimates are more sensitive at shorter frequencies than at longer ones. Secondly, the study reveals varied degrees of contagion during crisis periods. Notably, during COVID-19 (Russia-Ukraine conflict), the contagion is driven by short-term (long-term) shocks, specifically during the bearish (bullish) phase. Thirdly, quantile connectedness measures depict intense correlations around market extremes, underlining dynamic net return-contagion with tailored risk strategies. The shifts in shock transmission roles during bearish and bullish scenarios, along with evolving dynamics across time-frequency horizons, emphasize substantial interconnectedness within the network. Our findings suggest limited diversification scope under extreme market conditions, informing investment decisions, risk management, and portfolio optimization.
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