Asymmetric Volatility Spillovers Research Articles

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.

Asymmetric volatility spillovers among new energy, ESG, green bond and carbon markets

Green finance markets focus on environment-friendly investments and help address climate change. This study explores the asymmetric dynamic volatility spillovers among new energy, environmental, social and governance (ESG), green bond and carbon markets in China, by developing an asymmetric dynamic volatility connectedness approach. Our results show that (i) the persistence of asymmetric volatility shock transmission between new energy and ESG stock markets is about 40 days, which is higher than that of carbon or green bond markets; (ii) bad total volatility spillovers dominate good total volatility spillovers after the COVID-19 outbreak; (iii) for both good and bad volatility, ESG and green bond markets are mainly net transmitters, while new energy and carbon markets are mainly net receivers; and (iv) the bad volatility spillovers to new energy and ESG stock markets from other markets in the green finance system are higher than good volatility spillovers. However, the good volatility spillovers to carbon and green bond markets from other markets are higher than bad volatility spillovers. These findings provide vital insights for policymakers and investors.

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.

Symmetric and asymmetric volatility spillover among BRICS countries' stock markets

Symmetric and asymmetric volatility spillover among BRICS countries' stock markets

Asymmetric volatility spillovers between Bitcoin, oil, and global stock in economic uncertainty

Asymmetric volatility spillovers between Bitcoin, oil, and global stock in economic uncertainty

Asymmetric Volatility Spillover among Macroeconomic Variables and Pakistan Stock Exchange

The present research focused on the association of macroeconomic variables uncertainty with the volatility of stock market in Pakistan. The research explored uncertainties in macroeconomic series by common version of EGARCH and GARCH variances were used as proxies of volatilities. Furthermore, the series were incorporated into mean and variance equations to model spillover effect between stock market and indicators of macroeconomy. The association was additionally checked through VECM and Wald test methods. The investigation used monthly observations from January 2001 to December 2020. Findings revealed a significant causality amid macroeconomic volatility and stock exchange volatility. The outcomes also reconciled with Banumathy and Azhagaiah (2015); Wang (2011). A bilateral causal relationship was found between volatilities of gold prices and manufacturing output with stock market, whereas uni-directional causality was from exchange rate, inflation and oil prices toward stock market.

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.

The asymmetric volatility spillover across Shanghai, Hong Kong and the U.S. stock markets: A regime weighted measure and its forecast inference

Based upon generalized spillover index method under Markov switching vector auto-regression (MS-VAR) framework, this paper aims at a regime dependent measure of the volatility spillover asymmetry across Shanghai, Hong Kong and the U.S. stock markets. For that, we apply a regime weighted measure of spillover and its asymmetry. The empirical results show that there existed evident negative asymmetric effect of spillover across the three markets, and it was regime dependent and time-varying: it got intensified under high volatility regime and turned out stronger after the Program of Shanghai-Hong Kong stock connect. The regime weighted measure of spillover asymmetry is found to be reliable; it could be explained appropriately with the economic policy uncertainty and investors' fear in the U.S., extreme shocks like crash of Shanghai stock market and COVID-19 as well as the capital flow through the Program. From in-sample evidence and out-of-sample forecast of Shanghai stock market, we infer that traditional forecast models could be improved if regime dependent spillover and its asymmetry are considered as additional factors.

Study on The Impact of Shanghai Crude Oil Price Volatility and Stock Indices of China's Oil-related Industries

This paper takes Shanghai crude oil futures price and the industry stock index related to it as the research object, and selects the daily data from March 26, 2018 to December 31, 2022, and adopts the BEKK-GARCH model. To explore the correlation between Shanghai crude oil futures price volatility and different segmented industry stock markets. It is found that there is a significant asymmetric volatility spillover effect effect between the vast majority of oil-related industry markets and the Shanghai crude oil market. Based on the relationship between Shanghai crude oil futures prices and oil-related industry stock indexes, investors can make investments based on the fluctuations of Shanghai crude oil futures prices, rationally study the changes in the stock prices of oil-related industries, and do not follow the market panic operations using futures to control risk. And with the oil industry chain related to a higher degree of industry, by increasing the asset allocation method, can effectively reduce risk.

Time-varying asymmetric volatility spillovers among China’s carbon markets, new energy market and stock market under the shocks of major events

This paper investigates the dynamic asymmetric (good and bad) volatility spillover effects among China’s carbon markets, new energy market and stock market by considering the volatility asymmetry in the markets. We infer the good and bad volatilities from the GJR-GARCH model, where they correspond to positive and negative shocks, respectively. Moreover, we extend the traditional (symmetric) marginal net spillover measure to asymmetric (good and bad) marginal net spillover measures to analyze the time-varying asymmetric transmission of volatility spillovers across markets based on external shocks of major events, including the Sino–US trade war, COVID-19 pandemic, and Russia–Ukraine conflict. Our empirical results show that there exists significantly time-varying asymmetric volatility spillover effects among China’s carbon markets, new energy market and stock market. Moreover, the bad volatility spillover effect dominates the good volatility spillover effect. The asymmetric (good and bad) volatility spillovers across markets increase under the shocks of major events. In particular, we observe that the good volatility spillovers increase more significantly compared with the bad volatility spillovers during the Sino–US trade war and COVID-19 pandemic, while the bad volatility spillovers increase more significantly compared with the good volatility spillovers during the Russia–Ukraine conflict.

US Originated Asymmetric Volatility Spillover Effects: An Intraday Comparison Between Korean and Japanese Stock Markets

US Originated Asymmetric Volatility Spillover Effects: An Intraday Comparison Between Korean and Japanese Stock Markets

How economic policy uncertainty affects asymmetric spillovers in food and oil prices: Evidence from wavelet analysis

In the context of potential asymmetric volatility spillovers between two crucial commodity markets, oil and food, little is known about the vital role played by policy uncertainties. This study explores the heterogeneous roles of policy uncertainties on spillovers between crude oil and corn and soybeans under good and bad volatility regimes from both time and frequency domain perspectives. We find, first, that oil-food market spillovers are asymmetric, time-varying and crisis-sensitive. Second, the time-frequency dependence between policy uncertainties and oil-food volatility spillovers is prominent in the context of major international events. Third, monetary policy uncertainty (TPU) weakly affects the oil-food spillover system. Still, in the long run, economic policy uncertainty (EPU) and fiscal policy uncertainty (FPU) exert significant positive effects, while monetary policy uncertainty (MPU) is negative. In addition, there is considerable heterogeneity in the roles played by policy uncertainties in the specific crude oil-food pairwise spillovers. Our study has important implications for policymakers to avoid large-scale cross-market spillover transmission and for investors to hedge risks and construct appropriate portfolios.

Market Connectedness and Volatility Spillovers: A Meta-Literature Review

Evaluation of market connectedness and asymmetric volatility spillover has recently seen a surge in financial risk analytics and portfolio diversification. We carried out a meta-literature review on connectedness and spillovers, providing solid insight into the research field and robust guidelines for future investigation. The review consists of a quantitative bibliometric analysis of 594 papers and a qualitative content analysis of 77 papers covering 1991 to 2021. The results of the meta-citation analysis show that Diebold’s Spillover index (2007) is the predominant method in most works as far as market connectedness and spillover are concerned. With an extensive review, we achieved the following objectives: (1) Analyze the most influential authors, journals, and publications. (2) Understand the research streams and most studied streams. (3) Understand the theme’s structure, thematic evolution, and keyword trends. (4) Examine the pattern of collaboration and most productive affiliations. (5) Explore future research directions and untapped areas. The content analysis revealed the following important research streams in the current literature: (1) Asymmetries in market connectedness. (2) Influence of macro factors in market connectedness and spillover. (3) The role of oil in market spillovers and hedging portfolios. (4) Dynamic cross-market connectedness and spillovers. Our study is the first to employ a meta-review to assess the domain of market connectedness; thus, our work will significantly contribute to macroeconomic policymakers, researchers and hedging investors.

Asymmetric risk spillovers and its determinants in global equity markets

This study examines the asymmetric volatility spillover effect using realized measures across 22 international stock markets. The findings suggest a high connectedness among global equity markets, with downside risk spillover significantly higher than upside risk spillover over time. Besides, Europe has a higher connectedness than the American and Asia-Pacific markets, and risk contagion is from the European and American developed markets to the Asia-Pacific regions. The study further identifies implied volatility index and market liquidity as the main positive determinants of risk spillover, which are robust across different rolling window lengths and horizons. We also find that the explanatory power is more significant during financial crises.

The Asymmetric Volatility Spillover and Dynamic Correlation Across Equity Markets in China and The United States

This paper aims to study the volatility spillover effects as well as the dynamic conditional correlation between stock market returns in China and the U.S. Firstly, the analysis uses a vector autoregression with a bivariate BEKK-GARCH model to capture the asymmetric volatility transmissions between the two markets during the sample of 1996-2019. Then a VAR-DCC-GARCH model is employed to estimate the dynamic conditional correlation between these two market returns. Finally, linear regression and Granger Causality test are conducted to further explore the effect of the U.S policy rates on such correlation. In order to account for the U.S monetary stances during the unconventional period, a combination of Fed fund rates and Shadow rates developed by Wu and Xia (2016) is used as policy rates. The main empirical results suggest (1) evidence of unidirectional volatility spillover from the U.S. to China market; but no spillover from China to U.S; (2) the dynamics of the conditional correlations from the VAR-DCC-GARCH model exhibit increases in correlation between the stock returns of China and U.S after 2008 financial crisis and recent trade war; (3) a linear regression shows that there is negative relationship between U.S policy rates and the dynamic conditional correlation, with the correlation coefficient r=-0.62. Granger Causality test suggests that the U.S policy rates do cause the change of the conditional correlation but not the other way around.

Asymmetric volatility spillover among global oil, gold, and Chinese sectors in the presence of major emergencies

The volatility of international crude oil and gold markets has affected stock markets through several economic channels, and the impact tends to be more evident with the appearance of emergencies. However, the volatility linkages between commodities and Chinese sector stocks in the presence of emergencies are understudied. To examine the asymmetric relationship and time-varying connectedness between commodities and Chinese sector stocks, this paper first employs GJR-GARCH to capture the realized volatility of international oil, gold, and Chinese sector stocks. Secondly, we decompose the realized volatility of international oil and gold into bad and good volatility and then employ the TVP-VAR-DY approach to obtain the connectedness index. The final result shows asymmetric volatility spillover among oil, gold, and Chinese sector stocks. During the COVID-19 outbreak, the gold good volatility transmission is intenser than bad volatility. Thirdly, the analysis is also carried out under different subperiods. They include three international events: the global financial crisis and the European debt crisis, the oil crisis, and COVID-19. The result reveals heterogeneity exists in the impact of international oil and gold on the Chinese sector stocks under different emergencies. These findings are of great significance for policymakers to improve the sector management under the impact of different emergencies and for investors to design diversified portfolios according to the commodity-sector risk spillover effects.

Asymmetry in Return and Volatility Spillovers Between Stock and Bond Markets in Turkey

In this study to analyze the asymmetric volatility spillovers. We study in the stock and bond markets in Borsa Istanbul. The research covers 2003-2019. Financial crises have increased the importance of the transition between the stock and bond market. Apart from the full period, the 2008 financial crisis period examines separately in order to see the effects of the spillovers during the crisis period. First, asymmetric volatility tests with the sign bias test. Then, whether the stock and bond market volatility is asymmetric, investigate with the GJR-GARCH model. Finally, asymmetric volatility between the two markets test with the VARMA-AGARCH model. According to the asymmetric volatility test results, negative volatility asymmetry exists in the bond market in full period. Asymmetric volatility is positive in both market in the crisis time. Return spillovers from the stock market to bond market in full period. It is opposite direction during the crisis period. We have found volatility spillovers bidirectional among the stock market and the bond market. However, during the global crisis period, volatility spillover is bidirectional from the stock market to the bond market.

Asymmetric volatility spillover from retail trading of noise traders: evidence from the gamestop short squeeze

Purpose-Recently, it has been observed that social trading and social media-based stocks are very popular especially for retail investors in the financial world. However, coordinated transactions of retail investors through social platforms carry the risk of classical noise trading, and the noise-based transactions of these investors, described as irrational investors, constitute a new source of systematic risk in the market. Considering the mentioned issues, this study aims to reveal the volatility and asymmetric volatility effects of social media-based noise trading of retail investors through the recent GameStop short squeeze. Methodology-The volatility and asymmetrical volatility spillovers from the social media-based retail transactions of the noise traders to the stock market were investigated using the EGARCH method, following Verma and Verma (2007), on the GameStop short position squeeze case. Findings-In the study, positive and statistically significant volatility spillover coefficient representing the spillover effect of the volatility in the GME index towards the NYSE Composite index and a negative and significant asymmetry coefficient revealed that the volatility spread from the GME index to the NYSE Composite index was asymmetrical. In this context, negative shocks in the GME index have a greater impact on the volatility of the NYSE Composite index than positive shocks. In addition, the findings of the study showed that there was no asymmetric volatility spillover from the NYSE Composite index to the GME index, and that past volatility in the GME index had a greater impact on present conditional volatility than the NYSE Composite index. Conclusion-This study determined that there was an asymmetrical volatility spillover from the GME index to the NYSE Composite index, and revealed that the social media-based retail transactions of noise traders may have not only volatility but also asymmetric volatility spillover effects in the markets. Keywords: GameStop, meme stocks, noise traders, retail trading, social media, asymmetric volatility JEL Codes: G10, G11, G14, G41

Asymmetric volatility spillover between oil prices and regional renewable energy stock markets: A time-varying parameter vector autoregressive-based connectedness approach

<abstract> <p>The rapid expansion of renewable energy sources and their integration into the energy mix has generated scholarly interest in comprehending the interplay between renewable and conventional energy markets. This research aims to examine the (a)symmetric volatility spillover between the oil market and various regional renewable energy stock markets, namely the US, Europe and Asia. To achieve this objective, we employ the time-varying parameter vector autoregressive-based connectedness (TVP-VAR) approach, which allows analysing the interconnection and transmission of shocks between the different markets. Based on an analysis of daily data relative to the different regional renewable energy stock markets and international oil prices, the findings suggest the presence of a dynamic volatility connectedness between the green and brown energy stock markets. The extent of connectedness is contingent upon the specific regional renewable energy market under consideration. Moreover, the decomposition of the volatility series into <italic>good</italic> and <italic>bad</italic> volatility emphasizes an asymmetric pattern, which becomes more pronounced during periods of major events. On average, the oil market and the Asian renewable energy stock market are net receivers of volatility shocks. In contrast, the US and European renewable energy stock markets are net transmitters of shocks. Our findings provide investors with valuable insights for portfolio design and risk management decisions.</p> </abstract>

Asymmetric volatility spillover between hospitality sub-sectors during COVID-19: evidence from the USA

PurposeThis article examines dynamic volatility spillovers between stock index returns of four main hospitality sub-sectors in US during the coronavirus disease 2019 (COVID-19) pandemic. These are tourism and travel, hotel and lodging, recreational services and food and beverages. Volatility spillovers are explicitly used as accurate and informative proxies for risk contagion between sectors during turbulent times.Design/methodology/approachThe authors employ dynamic conditional correlation-generalized autoregression heteroskedasticity (DCC-GARCH) and wavelet coherence analysis (WCA) to analyze the phenomenon. The authors’ timeframe is divided into three main sub-periods, namely the pre-pandemic, the first wave and the second wave periods.FindingsThis study’s results reveal immense negative shocks in returns of all four sub-sectors on the Black Monday (8th March 2020). Moreover, high volatility persistence was observed during both waves with an exception of tourism and travel which exhibited lower volatility persistence during the second wave. The authors discovered magnified contagion effects between tourism and travel, hotel and lodgment and recreational services during the first wave of the pandemic with tourism and travel being the main volatility transmitter. Lower magnitudes of spillovers were observed between food and beverages and other sub-sectors with a decoupling effect being evident during the second wave.Research limitations/implicationsThis study’s findings contribute to the contagion theory by providing evidence of disproportional volatility spillover among hospitality sub-sectors despite being exposed to similar turbulent economic conditions.Practical implicationsCrucial implications can be drawn from this study’s findings to assist in risk management, asset valuation and portfolio management. The importance of close monitoring, safety measures, international diversification and adequacy of liquid assets during health crises cannot be stresses enough for hospitality firms. Retail investors, speculators and asset managers can take advantage of this study’s findings to design trading strategies and hedge against risk.Originality/valueA body of knowledge pertaining to effects of crises such as COVID-19 on hospitality stocks has been proliferating. Nonetheless, there is still a relative dearth of empirical literature on volatility spillover between hospitality sub-sectors especially during periods of rising economic uncertainties.