Asymmetric Spillovers Research Articles

Forecasting the Realized Volatility of Stock Markets: The Roles of Jumps and Asymmetric Spillovers

ABSTRACTThis paper evaluates the roles of jump and sign‐asymmetry spillovers in forecasting the realized volatility in a large sample of 20 stock markets. We compare for the first time whether controlling for either the jumps or asymmetric spillovers into the heterogeneous autoregressive–realized volatility (HAR‐RV) model improves the forecasts over 1, 5 and 22 days. Before doing so, the spillovers predictors are generated. In analyzing the spillover process, we find that the US stock market remains the main net transmitter of shocks, and while China is relatively detached from the spillover linkages, such effects may be transmitted through Hong Kong, which is a significant receiver of shocks. The out‐of‐sample results reveal that the incorporation of jump spillovers improves forecast performance the most across a range of measures. This is more clearly demonstrated at the 22‐day forecasting horizon more notably in Europe, France, Germany, India, and the United Kingdom. Lastly, irrespective of the forecasting horizon, performing the predicting stability test uncovers significant improvements in the jump spillover–based model during periods of notable market stress such as the 2014–2016 oil price crash and COVID‐19. Overall, results suggest paying more attention to jump spillover while constructing international portfolios based on the realized volatility.

Multiple Reputations: Selective Attention to Competence and Character.

Reputation is multidimensional, with some traits being more relevant than others in particular contexts. Can people selectively respond to reputational cues relevant to the task at hand? Across three studies, we examined how people weigh cues about helpfulness and competence when forming expectations about strangers' behavior. Using adapted investment games, we varied whether a stranger's helpfulness or competence predicted participants' future payoffs. We found that when helpfulness is task-relevant (Experiments 1 and 2), participants correctly use this cue in investment decisions. When competence matters most (Experiment 3), participants use it as the primary cue. Overall, a high reputation for outcome-irrelevant characteristics did not compensate for a low reputation for the outcome-relevant reputational cue. However, we also find an asymmetric spillover: Decision-makers prefer cooperating with others who are highly competent and highly helpful, regardless of task demands. We discuss our results within the theoretical framework of person perception and theories of reputation.

Climate risk and global economic policy uncertainty asymmetric spillover on global energy mix

Climate risk and global economic policy uncertainty asymmetric spillover on global energy mix

Higher-order moments spillovers among energy, carbon and tourism markets: Time- and frequency-domain evidence.

This paper uses the GJRSK model to estimate the high-order moments of energy (oil, natural gas, and coal), the carbon market, and tourism stocks. Then, it utilizes a novel TVP-VAR time-frequency connectedness approach to examine higher-order moments spillovers among them. The results show a strong connectedness among the three markets. The energy market is the emitter of volatility, skewness and kurtosis spillovers; tourism stock is the receiver; and the carbon market is the transmitter. From a time-domain perspective, the higher-order moments spillovers of the three markets are time-varying, especially during extreme periods, where the energy market's spillover effects on tourism stocks are significantly enhanced, indicating that tourism stocks bear a greater risk at leptokurtosis and fat-tail moment. From a frequency-domain perspective, the long-term asymmetric spillovers of oil, natural gas, and tourism markets on the carbon market are more pronounced than the short-term. Moreover, the COVID-19 pandemic exacerbated the higher-moment spillovers of energy and tourism stocks on the carbon market. Meanwhile, the Russia-Ukraine conflict led to extreme risk transmission within the energy market. These findings have significant implications for cross-industry investors and green finance risk management.

Asymmetric spillovers and resilience in physical and financial assets amid climate policy uncertainties: Evidence from China

Climate policy is essential for fostering sustainable development and addressing climate-related issues, while climate policy uncertainty (CPU) introduces complex challenges in providing a consistent framework for action. In this study, we delve into the spillover dynamics among China's domestic CPU, foreign CPU, physical assets, and financial assets across various market scenarios, through a quantile-based connectedness method and evidence from China. The findings reveal: (1) The spillover dynamics are asymmetric across quantiles and time, and the COVID-19 pandemic influences the total connectedness. (2) The complexity of spillover patterns in physical assets is likely contingent upon market conditions, policy sources, asset types, and industrial-chain positions, while the spillovers of financial assets are quantile-dependent and time-varying, with the agricultural equity market showing relative resilience to the pandemic. (3) There is no significant Granger causality in quantiles between domestic CPU and foreign CPU under the entire sample period, and the rankings regarding the spillovers from CPUs to assets vary across market conditions. Implications for policymakers, investors, and firms are provided.

Risk spillovers between Chinese new energy futures and carbon-intensive assets: Asymmetric effect, time–frequency dynamics, and portfolio strategies

This study investigates the asymmetric time–frequency risk spillovers between Chinese new energy futures and carbon-intensive assets by using a time-varying parameter vector autoregressive connectedness approach. The results reveal that, in both the return and volatility spillover cases, industrial silicon futures and lithium carbonate futures generally are the net receivers of risk spillovers as regards the relationships with carbon-intensive sectoral stocks and fossil energy futures. In addition, there exists an asymmetric spillover effect, where spillovers based on bad news are higher than those based on good news. Meanwhile, return and volatility spillovers are extremely intensive in the short term as compared to the medium the long term. Finally, this study develops portfolio strategies by constructing bivariate and multivariate portfolios comprised of new energy futures and carbon-intensive assets. The bivariate portfolio analysis indicates that industrial silicon futures and lithium carbonate futures can well hedge against carbon-intensive sectoral stocks. The multivariate portfolio analysis shows that allocating the smallest share of petrochemical stocks and steel stocks can mitigate investment risks. These findings have important implications for investors and policymakers.

The Asymmetric Spillover Effects of Retirement on Disability: Evidence From China.

Recent research has explored the spillover effects of retirement on spousal well-being, yet limited attention has been given to the short-term impact on spousal disability. This study explored the asymmetric spillover impact of retirement on spouses' disability severity among a national cohort of urban residents in China. Utilizing 4 waves of data (2011-2018) from the China Health and Retirement Longitudinal Survey, we employ a nonparametric regression discontinuity design to estimate the short-term effect of retirement on spousal disability severity. Disability is assessed based on their ability to perform activities of daily living (ADLs) and instrumental activities of daily living (IADLs). Furthermore, we conduct heterogeneity analysis stratified by factors such as the husband's retirement status, health conditions, lifestyle behaviors, and the wife's educational level. Additionally, we explore potential mechanisms including changes in health behaviors, emotions, and disease diagnoses. Our findings indicate that wives' retirement has a significant favorable short-term effect on husbands' ADL scores, with a magnitude of -0.644 points (-9.78% relative to baseline). A significant beneficial effect of wives' retirement on the prevalence of husbands' difficulty in dressing, bathing, and eating was observed with substantial magnitudes of 0.075, 0.201, and 0.051 points, respectively. Various heterogeneity analyses and sensitivity tests confirmed the robustness of our results. The positive spillover effect of wives' retirement likely results from reduced negative emotions in husbands. In contrast, husbands' retirement does not affect the prevalence of ADL/IADL disability in their wives. Underscoring the gender asymmetry in the effects of spousal retirement on disability, this study emphasizes the need for tailored policies considering men's and women's distinct disability experiences.

Systemic risk-sharing between natural gas, oil, and stock markets in top energy producer and consumer countries

This study investigates the dependence and risk spillovers in the short-, medium- and long-terms between natural gas (NG), crude oil and stock markets of top energy producer countries (Russia, Ukraine, and US) and consumer countries (China, India, and EU members). Using the wavelet coherence approach, the results show a long-term dependence between NG and all stock markets between 2006 and 2022. Low and intermediate frequency co-movements of oil with stock markets are more pronounced among top energy producers than top energy consumers (except the EU). Further, there is heterogeneous dependence between stock markets and both NG and oil. Moreover, the dependence is positive and high for oil, and negative for NG, irrespective of the time horizon. NG is a hedge asset in the short-, medium- and long-terms for investors in top energy producer and consumer countries. Oil is a diversifier asset in the long term and a weak hedge asset in both short- and long-terms. We find evidence of significant bidirectional and asymmetric spillovers of NG, oil, and stock markets. The upside and downside risk spillovers for both NG and oil are higher in the long term than in the short- and medium-terms. NG sends more risk to stock markets than oil does in the long term, particularly in Russia. Our findings have significant implications for financial risk assessments and stock market stability.

Asymmetric TVP-VAR connectedness between highly traded commodities and hedging strategies: Evidence from major contagions

The objective of this study is to examine the return interconnectedness and asymmetric spillover effects in global commodity futures markets, with a focus on the impact of contagion. A competent asymmetric time-varying parameter vector autoregressive (TVP-VAR) model was employed for highly traded commodity futures (cocoa, coffee, corn, cotton, soy, sugar, wheat, and oil) between January 1, 2000, and March 31, 2024. This study investigates the connectedness of commodities in three dimensions: asymmetric spillovers, the influence of oil and oil substitutes on the network, and the impact of major contagions. The average total connectedness index (TCI) indicates that the connectedness is significant throughout the period and increases during the invasion. The findings imply that contagion effects trigger a potential alteration in the structure of the network integration level of the commodities, amplifying system-wide dynamic connectivity due to disurptions caused by oil and oil substitutes. The net plot depicts corn and soy as the net transmitters, with their magnitude increasing during the contagions. The pairwise connectedness index (PCI) revealed that corn-soy, corn‒wheat, and soy-wheat were the primary interactors, while oil became a significant interactor, particularly during the oil crash and the COVID-19 outbreak. Additionally, compared with other contagions, GFC had a potential asymmetric effect on the network. Positive returns dominate the interaction between the primary transmitter and receivers, whereas negative returns do not significantly dominate the total network. These investigations contribute to the literature on the food-fuel nexus in terms of asymmetries and the impact of contagions on the futures market. It also identified the optimal portfolio allocation based on the hedging effectiveness of three portfolio construction strategies.

Asymmetric spillover and quantile linkage between the United States and ASEAN+6 stock returns under uncertainty

This study examines the spillover and connectedness network among the United States and the Association of Southeast Asian Nations (ASEAN)+6 stock market returns during times of uncertainty in the world economy, such as the COVID-19 pandemic and the conflict between Russia and Ukraine. The quantile vector autoregression (QVAR) method was used, and daily data was collected from January 2, 2017, to June 30, 2023. The evidence provides important conclusions. Firstly, the overall level of static and dynamic connectivity is higher and more intense at extreme conditions, both lower and upper quantiles. Furthermore, the structure of network connectivity demonstrates that, in various market conditions, markets have functioned as both net transmitters and shock receivers. Eventually, the top three nations in which return volatilities are actively transmitted to other stock market outcomes in all three quartiles are the United States, Korea, and Singapore. This study offers suggestions for investors, policymakers, stock market reforms, and macroeconomic transformations; for example, portfolio diversification techniques may not benefit investors.

Comparative investment analysis between crypto and conventional financial assets amid heightened geopolitical risk

This empirical research study aims to investigate the asymmetric spillovers among crypto and key financial assets such as gold, equity, bonds, and the dollar-to-ruble exchange rate volatility, focusing on new developments during the Russia-Ukraine conflict in 2022. Utilizing time- and frequency-domain methodologies, this study conducts an in-depth analysis employing daily frequency data from January 01, 2018, to May 30, 2023. The study employs value at risk and conditional value at risk estimations to assess potential losses in the portfolio during the crisis. The findings reveal that Bitcoin exhibits hedging ability, enabling investors to diversify risk among the underlying financial assets. The study observes a significant increase in Bitcoin investments during the crisis, leading to heightened volatility and uncertainty. Negative news has a stronger impact compared to positive news, underscoring the importance of prudent asset allocation for risk mitigation. The implications of our findings are particularly significant for financial policymakers and trade partners of Russia. The study urges them to differentiate their short- and long-term strategies and procurement contracts. In the long run, policymakers should be cognizant of the influence of the riskiness of crypto assets during economic crises, guiding the formulation of prudent policies and investment decision-making initiatives.

Dynamic spillover between crude oil, gold, and Chinese stock market sectors –analysis of spillovers during financial crisis data during the last two decades

The present study investigates the presence of asymmetric return spillovers among crude oil futures, gold futures, and ten Chinese stock sector markets. Time-varying asymmetric spillovers between commodities and the 10 sectors are shown by utilizing the spillover index developed by Diebold and Yilmaz (2012, 2014). Our findings indicate that the industrial and discretionary consumer sectors generate and benefit the most from spillovers. Furthermore, it has been established that the basic materials sector exhibits a net positive impact on spillovers. In contrast, oil futures, gold futures, and other sectors demonstrate a net negative impact as recipients of spillovers. Moreover, the negative return spillovers outweigh the positive return spillovers. Our analysis spans from 2000 to 2023 to include various financial crises. The spillover effects of asymmetry are impacted by various factors, including the global financial crisis (GFC), the European sovereign debt crisis (ESDC), the decline in oil prices, and the outbreak of the COVID-19 pandemic. Including gold and oil in individual equity markets can benefit equity investors. Furthermore, implementing hedging strategies is susceptible to the global financial crisis, economic slowdown, oil price decline, and the recent COVID-19 pandemic. The oil futures exhibit the greatest hedging effectiveness during the COVID-19 spread. The findings indicate that gold exhibits comparable outcomes solely in the presence of positive spillover effects. At the same time, its performance reaches its peak during the recovery phase in the context of negative spillover effects.

Deciphering asymmetric spillovers in US industries: Insights from higher-order moments

Incorporating higher-order moments, like realized volatility, skewness, and kurtosis, is crucial for understanding asymmetric asset pricing trends. Our research rigorously calculates static and dynamic higher-order moment spillovers across nine distinct US industries, using ultra-high-frequency data. We dive into the complex factors driving these spillovers, examining micro and macro-level factors. Our findings illuminate how higher-order moments are transmitted among these industries, particularly during disruptive global events with time-varying patterns. Notably, we discover that crash risk's persistence surpasses that of volatility risk, highlighting a significant divergence in market agents' asset pricing mechanisms. Importantly, firm-level risk factors significantly influence crash risk, showing an inverse relationship with industry-specific uncertainty. On the other hand, external macro-level risk factors directly impact the realized volatility of these industries. Our study's insights have substantial implications for various stakeholders, including investors, fund managers, policymakers, and financial regulators.

More different than alike: cross-sector volatility spillovers in Chinese stock sectors during COVID-19 pandemic

ABSTRACT The asymmetric spillovers and dynamic connectedness among sectors in Chinese stock market have not been fully studied, especially the impact of catastrophic events related to the COVID-19 pandemic on the linkages. In this paper, an asymmetric VAR-BEKK (DCC) – GARCH model is employed to measure the volatility spillovers and dynamic correlations among Chinese stock sectors before and during the COVID-19 pandemic. The empirical results indicate that volatility spillovers among sectors are significant, with evident differences before and during COVID-19. To be specific, the primary spillover transmitting sector has shifted from telecom business for the pre-pandemic period to the financial real estate sector after the outbreak. However, the role of the raw materials sector as the spillover receiver has not changed. Notably, the medical health sector forms closed-loop chains of transmission with the most other sectors during the COVID-19 period. In addition, asymmetric volatility spillovers and dynamic correlations among stock sectors are also significantly examined. The findings contribute to investors and decision makers in adjusting trading strategies and monitoring market risks.

Riding the waves: A study of return spillovers and inter-sector linkages in US equity markets during the COVID-19 pandemic

In times of crisis, stock markets experience a significant increase in return volatility, which leads to spillovers across equity sectors. The purpose of this study is to investigate the asymmetric spillovers across ten U.S. equity sectors, representing different industries. Daily prices of sector indices were collected from 02 January 2018 to 22 October 2021 for the analysis. In addition, the study applied Diebold and Yilmaz's (2012) dynamic spillover methodology, along with the static and rolling windows phenomena, to examine the daily returns spillovers across sector indices. The results indicate that 82 % of volatility forecast error variance in U.S sector indices is due to the spillover effect. Moreover, both industrials and financials exhibit the highest gross spillovers to other sectors, while they also receive the highest spillovers from other sectors. Furthermore, the oil and gas sector and utilities sector receive the highest net returns spillovers. These empirical findings provide crucial information regarding the interdependence of U.S. sector indices during the COVID-19 pandemic, which is relevant for investors and practitioners.

Asymmetric volatility spillover between crude oil and other asset markets

This study uses the Multiplicative Error Model (MEM) to explore asymmetric volatility spillovers between crude oil and other major asset markets. We have extended the MEM of Engle et al. (2012) to include asymmetric volatility spillovers and developed the spillover balance as well as asymmetric spillover indexes. We have then allowed these indexes to vary over time. Our results reveal that the stock market is the dominant contributor to volatility spillover, while the crude oil is mostly the volatility spillover recipient. The asymmetric spillover effects are predominantly negative in the stock and crude oil markets and positive in the bond market. We further show that the spillover indexes are dynamic and influenced by specific events, such as the global financial crisis and the COVID-19 pandemic, as well as varying economic conditions.

Dynamic asymmetric spillovers and connectedness between Chinese sectoral commodities and industry stock markets.

This study investigates the dynamic and asymmetric propagation of return spillovers between sectoral commodities and industry stock markets in China. Using a daily dataset from February 2007 to July 2022, we employ a time-varying vector autoregressive (TVP-VAR) model to examine the asymmetric return spillovers and dynamic connectedness across sectors. The results reveal significant time-varying spillovers among these sectors, with the industry stocks acting as the primary transmitter of information to the commodity market. Materials, energy, and industrials stock sectors contribute significantly to these spillovers due to their close ties to commodity production and processing. The study also identifies significant asymmetric spillovers with bad returns dominating, influenced by major economic and political events such as the 2008 global financial crisis, the 2015 Chinese stock market crisis, the COVID-19 pandemic, and the Russia-Ukraine war. Furthermore, our study highlights the unique dynamics within the Chinese market, where net information spillovers from the stock market to commodities drive the financialization process, which differs from the bidirectional commodity financialization observed in other markets. Finally, portfolio analysis reveals that the minimum connectedness portfolio outperforms other approaches and effectively reflects asymmetries. Understanding these dynamics and sectoral heterogeneities has important implications for risk management, policy development, and trading practices.

Research on dynamic spillover effect of stock market volatility in Beijing-Tianjin-Hebei region

To enhance economic cooperation in the Bohai Sea and Beijing-Tianjin-Hebei region, China introduced the Beijing-Tianjin-Hebei integration plan in 2014. Over the past decade, coordinated development has established a solid foundation, emphasizing economic and spatial structure optimization. The region’s development has now achieved comprehensive, qualitative, and profound progress. Recognizing economic integration as crucial, this study analyzes the 2020-2023 stock data of listed firms in the region, utilizing the DY spillover index to examine sectoral volatility spillover effects, both statically and dynamically. Results reveal bidirectional, asymmetric spillovers, with heterogeneous spillover levels. Industry, raw materials, and information technology are key spillover sectors, significantly influencing others and inducing synchronization. Property and finance sectors are primarily recipients, influenced by others. Energy and communication services exhibit strong bidirectional spillovers. Volatility spillover strength is influenced by factors such as inter-sector correlation, market risk, macroeconomic changes. Studying these factors helps grasp volatility spillover patterns and understand sectoral volatility-factor relationships.

Multidimensional risk spillover among power, coal, and carbon markets: empirical evidence from China.

Amidst the "double carbon" target, China is vigorously promoting the transformation of the electricity and coal markets and carbon markets widely regarded as an effective policy tool for managing carbon emissions. Leveraging sample data from January 3, 2017, to December 16, 2022, this study investigates the risk spillover effects among China's power, coal, and carbon markets via rolling window technology and the DY spillover index. The empirical results indicate a significant long-term two-way asymmetric spillover effect among these markets. Specifically, the Guangdong carbon market acts as both an exporter and receiver of risky fluctuations across the two sample periods. The coal market primarily exhibits a net risk spillover effect on the Guangdong and Hubei carbon markets. Furthermore, the aggregate spillover index reveals that the volatility spillover effects of the power, coal, and carbon markets are significantly amplified by extreme risk events. The rise and volatility of coal prices under the influence of these extreme risk events may lead to government intervention in the power sector, which in turn has an impact on the coal market. These findings underscore the time-varying nature of risk spillovers among markets and have important implications for risk management and the construction of diversified energy markets.

Returns and Asymmetric Volatility Interdependencies between Sustainable and Conventional Stock Indices: Evidence from Developed and Emerging Countries

The study investigates the co-integration and asymmetric volatility interdependence between the sustainable and conventional stock indices of emerging and developed countries. Daily closing values are used from 1st January 2015 to 15th July 2022. The study employs ARDL and VAR-Granger causality model to examine long-run association and cause-effect relation, respectively. Moreover, the Bivariate EGARCH model is also used to analyse return and asymmetric volatility spillover between two indices. The analysis reveals no evidence of co-integration between sustainable and conventional indices. However, bidirectional causality exists in all countries except the United Kingdom (UK) and United Arab Emirates (UAE). The return spillover result exhibits that return of the conventional index of Japan and Brazil are negatively affected by changes in its sustainable index. The EGARCH results reveal the bidirectional volatility spillover in all the markets. The volatility shocks from the sustainable index of the United States of America (USA) and China have an asymmetric effect on the conventional indices of these countries. Further, positive asymmetric spillover was observed between the sustainable and conventional indices of Brazil and UK. The knowledge of linkage and asymmetric volatility spillover will assist the investors in portfolio management and formulating hedging strategies during financial and economic adversities.