Quantile and time-frequency spillover between rare earth and its interlinked markets: A geopolitical perspective

Abstract

Underlying vulnerability of geopolitical risk for rare earth markets and its interlinked markets motivated this research is to explore their nexus by using different connectedness models. In doing so, the current study employed three diversified set of methodologies namely, quantile vector autoregression, BK framework, and cross-quantilogram to investigate connectedness structure across different market conditions. The dataset of this study spanning from March 29, 2018 to April 28, 2023, covering several turmoil periods. Surprisingly, the empirical findings reveal significant evidence of connectedness between all markets. Notably, in lower quantile, geopolitical uncertainty, rare earth, and green energy stocks are the major transmitters, while oil is the major receiver. At the same time, rare earth, clean energy, technology, natural resource markets, and all green energy tokens except carbon are the significant transmitters in the upper quantile. In contrast, BK measures demonstrate that total frequency connectedness is more significant in the short and long run. While, cross-quantilogram results reveal that connectedness is more pronounced in the long run for rare earth, clean energy, technology, and mining stocks. Specifically, it is important to note that spillover effect are more substantial and differ across different crisis episodes. In addition, large swings in the connectedness index between geopolitical risk and chosen markets is observed after the escalation of the Russia-Ukraine War. The empirical results offer several important implications for investors and policymakers to apply effective risk management techniques and safeguard investments especially during economic turbulence.