Net Receiver Of Shocks Research Articles

Quantile Connectedness Amongst Green Assets Amid COVID-19 and Russia–Ukraine Tussle

With the advent of greening the global economy and the introduction of green financial assets, this study examines the connectedness and spillover effect of green assets using a QVAR approach focusing on the average connectedness and connectedness under extreme market conditions. The time of the study captures the crucial global incidents of COVID-19 and Russia–Ukraine war to investigate the effect of major incidents on the connectedness of green assets. The results of the QVAR analysis reveal that green assets are moderately connected under normal market conditions; however, their connection is strengthened under extreme market conditions. IOTA and SP Green Bonds are the net receivers of shocks from other assets, and SP Green Bonds are connected to green energy indices and green cryptocurrencies during turbulent markets. Since green cryptocurrencies are closely connected, a lower portion of them should be added to portfolios, whereas SP Green Bonds qualify as a good diversifying agent in a portfolio. The study has significant implications for market participants, investors, and policymakers.

Connectedness between green bonds, clean energy markets and carbon quota prices: Time and frequency dynamics

In this paper, we investigate the time and frequency dynamics of connectedness among green assets such as green bonds, clean energy markets, and carbon prices. Using daily price data, we explore return spillovers across these green financial markets by applying the novel framework on time and frequency dynamics proposed by Baruník and Krehlík (2018). This allows us to identify the direction of spillovers among our variables, and decompose the connectedness to differentiate between short-term and long-term return spillovers. Our results indicate that green bonds and carbon prices act as net receivers of shocks, but mainly in the short-term. We also observe a low level of connectedness among our clean energy markets across both low and high frequency bands, even during times of economic or political crisis. Additionally, there are periods in which connectedness between the clean energy assets is driven by the long-term. In periods of economic and political stability, carbon prices may also provide an interesting diversifying tool for short-term investors. Our results should be of interest for investors and portfolio managers who focus on green financial markets, by strengthening the notion that green financial markets can offer diversification opportunities, for both short-term and long-term investors. Policy makers could also benefit from our insights on conectedness in their work on short-term and long-term climate policies. This paper is the first to use this framework to investigate systematic risks within green financial markets.

Connectedness and systemic risk between FinTech and traditional financial stocks: Implications for portfolio diversification

The rapid growth in FinTech is attracting significant investor attention. There are concerns that FinTech stocks may be a source of systemic risk and this has implications for the stability of the financial sector. This study uses a TVP-VAR model to estimate the dynamic connectedness between global FinTech stocks and the stocks of large US banks, regional US banks, US insurance, and global private equity. The findings reveal that FinTech and insurance stocks are net receivers of shocks while large US banks are a major source of shocks. Thus, FinTech stocks are not a source of systemic risk but can be affected by financial contagion and systemic risk originating from large US banks. The highest connectedness was observed at the onset of the COVID-19 lockdowns illustrating the dramatic impact that a health pandemic can have on systemic risk. Systemic risk also increased during the 2023 US bank panic. Connectedness has implications for constructing investment portfolios. The equally weighted, risk parity, and risk parity connectedness portfolios have similar portfolio summary statistics, but lower risk adjusted returns than the maximum Sharpe ratio portfolio which better captures the low correlation between FinTech stocks and traditional financial stocks. These results are robust across various portfolio rebalancing periods (daily, weekly, monthly).

Quantile connectedness between social network sentiment and sustainability index volatility: Evidence from the Moroccan financial market

The goal of this paper is to investigate the connectedness between investor sentiment and volatility on the environmental, social, and governance index (ESG) in Morocco. Therefore, on the basis of an investor sentiment index constructed from the X platform, and using quantile and frequency connectedness approaches, the findings reveal a significant connectedness between sentiment and ESG volatility, particularly during turbulent events. Although sentiment acts most of the time as a net receiver of shocks, notably during the COVID-19 pandemic and geopolitical crises, it sometimes becomes a net sender of shocks. Furthermore, the spillovers between sentiment and ESG volatility are determined mainly by the long-term component, especially during extreme events, implying the persistence of shock transmission due to high uncertainty. The results also illustrate the impact of market conditions on the spillovers between sentiment and ESG volatility. The conclusions of this study provide useful guidance for pro-ESG investors, policymakers, and companies.

Dynamics of global energy, geopolitics, and climate policy on inflation: A cross-regional analysis

This study investigates the intricate dynamics between the Consumer Price Index (CPI) and three critical determinants—Global Price of Energy (GPE), Geopolitical Risk (GPR), and Climate Policy Uncertainty (CPU)—across Europe, the USA, and China from February 1992 to April 2023. Using advanced methodologies, including time-varying Granger causality tests and a connectedness approach, we reveal that CPI consistently acts as a net receiver of shocks. The Total Connectedness Index (TCI) demonstrates a persistent and evolving mutual influence among these variables. Geopolitical Risk is identified as a constant net transmitter of shocks, while the role of Global Price of Energy evolves over time, and Climate Policy Uncertainty shows variable interactions with CPI. Our pairwise directional connectedness analysis highlights GPR's dominant impact on CPI and unveils distinct patterns in the relationships between CPI and the other determinants. This comprehensive approach provides a detailed understanding of the temporal and directional dynamics of inflation, offering valuable insights for policymakers and scholars. These findings underscore the need for nuanced economic strategies to address inflationary pressures and inform future research on the complex interplay of global economic factors.

Chinese Crude Oil Futures and Sectoral Stocks: Copula-Based Dependence Structure and Connectedness

Abstract China launched its first crude oil futures on 18th March 2018, with the primary objective of introducing its own hedging instrument in China. Our study responds to this objective by investigating the dependence structure based on time-variant and time-invariant copula, connectedness in various market conditions, and hedging effectiveness of oil futures with eleven GICS sectors in China using daily returns data from 19th June 2019 to 24th February 2024. Findings suggest that time-varying copula is a best fit for all the GICS sectors in China except for the Energy. Similarly, the results of time-varying (TVP-VAR) connectedness indicate that the oil futures are the net receiver of shocks in total, short (1–5 days), and long-time (5 to infinity) spillover. The oil futures can better offset portfolio losses during the down market than normal and up markets. Lastly, based on TVP-VAR, the hedging ratio, optimum portfolio weights, and hedge effectiveness are calculated. We find a positive hedge ratio across various pairs of assets, which reduces the assets’ volatility. Moreover, hedge ratios and optimum portfolio weights are non-constant over time. Our results significantly contribute to the scant literature on Chinese crude oil futures and have implications for investors and policymakers.

Clean energy market connectedness and investment strategies: New evidence from DCC-GARCH R[formula omitted] decomposed connectedness measures

In this study, we investigate the return propagation mechanism across four clean energy indices, namely, the NASDAQ OMX Green Economy Index, NASDAQ OMX Solar Energy Index, NASDAQ OMX Wind Energy Index, and NASDAQ OMX Geothermal Energy Index ranging from December 21st, 2010 until June 2nd, 2023 by using a novel DCC-GARCH-based R2 decomposed connectedness approach. This framework allows us to efficiently decompose dynamic conditional R2 goodness-of-fit measures into its decomposed components. Furthermore, we introduce the concept of minimum R2 decomposed connectedness portfolios and multivariate hedging portfolios. We find that the dynamic total connectedness is heterogeneous over time and economic-event dependent. In addition, the empirical results highlight that the NASDAQ OMX Green Economy Index is a net transmitter of shocks while all others are net receivers of shocks. Finally, we find that our proposed portfolio technique outperforms the NASDAQ OMX Green Economy Index as well as all alternative multivariate portfolio techniques regarding the hedging effectiveness score and the Sharpe ratio.

Dynamic connectedness of clean energy markets, green markets, and sustainable markets: The role of climate policy uncertainty

This study examines the dynamic connectedness of clean energy, green, and sustainable markets, and determine how climate policy uncertainty affects the level of connectedness in these markets. To this end, we use clean energy and clean technological innovation assets to represent clean energy markets; green bonds and clean cryptocurrency assets to represent green markets; and carbon and sustainability assets to represent sustainable markets. To analyze the connectedness, we apply a novel Quantile Connectedness measure to daily data ranging from January 9th, 2018 to September 11th, 2023. Results reveal a strong interconnectedness of clean energy markets, green markets, and sustainable markets. Results also show that clean energy markets are net transmitters of shocks, green markets are net receivers of shocks, and sustainable markets are both net transmitters and net receivers of shocks. Furthermore, to examine the role of climate policy uncertainty, we employ three different nonlinear methods, namely; the nonparametric causality-in-quantiles, quantile regression, and Kernel-based regularized least squares. Empirical results suggest that climate policy uncertainty has a causal and positive effect on the interconnectedness of clean energy, green, and sustainable markets. These findings are validated by various robustness analyses, and hence, provide vital insights into the risk diversification's goal of investors and portfolio managers.

In what way can worldwide robotics and artificial intelligence encourage development in green crypto investments? An implementation of a model-free connectedness technique

PurposeThis study aims to investigate connections between the development of robotic and artificial intelligence (AI) and green crypto investments. The author also explores the influences of global uncertainty shocks like the COVID-19 pandemic and international conflicts on the role of each channel.Design/methodology/approachIn this research, the author uses a cutting-edge model-free connectedness approach to investigate the relationships between the development of Global X Robotics and AI (BOTZ) and the volatility of green crypto investments from November 9, 2017 to March 24, 2023.FindingsIn the sample duration, the findings reveal a two-way link between AI and green/nongreen cryptocurrencies. Throughout the examined period, BOTZ has been a net receiver of shocks as determined by the net total connectedness. Among the main spillover shock carriers in the system, green cryptocurrencies are the most significant. The net pairwise directional connectivity reveals that green cryptocurrencies controlled BOTZ throughout the analyzed time, particularly during the COVID-19 era as well as the Ukraine–Russia crisis. According to the findings, the proposed system is vulnerable to a high level of indication influence.Practical implicationsThe results have important policy implications for investors and governments, as well as methods from the spillovers across the various indicators and their interconnections. Sharp information on the primary contagions among these indicators aids politicians in designing the most appropriate policies.Originality/valueTo the best of the authors’ knowledge, this paper is the first to look at the link between AI, technological advancement and green cryptocurrency investing. Second, this study developed a methodology for examining instability links between various factors that is more appropriate for investigating these linkages. This study investigates the links between AI, technical advancement and green digital currencies using a cutting-edge model-free connectivity method. This work is also the first to examine the interconnection between volatility derived from AI, technological development and green cryptocurrency investments in light of unknown events, such as the COVID-19 pandemic and the Ukrainian–Russian conflict. Finally, this study includes a daily database from the BOTZ fund, which attempts to invest in firms that stand to gain from rising robotics and AI use. Cardano (ADA), IOTA, NANO (XNO), Stellar Lumens and Tron are examples of green cryptocurrencies, whereas Bitcoin is an example of a nongreen cryptocurrency. These virtual currencies are being used to investigate the relationship between investor mood and green and nongreen digital currencies. The data set spans the period from November 9, 2017 to March 24, 2023.

Do Green Bonds Affect Extreme Spillover and Hedging Effects Across Stocks and Commodities?

This study investigates the extreme connectedness network among Green bonds, stocks and commodities and its implications for portfolio diversification during the turbulent periods. To this end, we implement the novel QVAR methodology by Ando, Greenwood-Nimmo, and Shin to study the connectedness at the median, extreme lower, and extreme upper quantiles. The results reveal dynamic spillovers among markets. Interestingly, static spillover effects are stronger for the extreme upper and lower quantiles than for the intermediate quantiles. Commodities are the major net transmitters, whereas Shanghai Stock Exchange green bond is the net receiver of shocks in the system. These results are supported by the findings of portfolio management analyses, which suggest that Green bonds and gold could function as potential diversification assets, serving as safe havens, particularly for the stock and Brent markets. Our study provides valuable insights for investors aiming to optimize their hedging strategies, guiding risk management, and portfolio diversification.

Dynamic connectedness among the BRICS markets and the recent pandemic: an application of TVP-VAR approach

PurposeThis 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/approachWe 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.FindingsOur 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/implicationsThe 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/valueThis study is one of its kind that examines the dynamic connectedness of BRICS with recently developed TVP-VAR approach across pandemic crisis.

Do social media sentiments drive cryptocurrency intraday price volatility? New evidence from asymmetric TVP-VAR frequency connectedness measures

ABSTRACT In this paper, we investigate interdependencies between cryptocurrencies and investor sentiment by introducing the asymmetric TVP-VAR frequency connectedness approach. Our empirical results provide evidence of pronounced and time-varying interconnectedness between sentiment and cryptocurrency. In addition, we find that negative short-term interconnectedness dominates positive short-term interconnectedness until mid-2020 when this effect was reversed, persisting until the end of the sample period. While Ripple and Bitcoin are both found to be the main net transmitters of shocks, Stellar, Ethereum, and NEM are considered net receivers of shocks. Overall, our findings suggest that market sentiment is mainly driven by cryptocurrency volatility in both the short and the long run.

Connectedness across commodities, stocks, exchange rates and bonds markets in Africa: the Covid-19 pandemic case

Connectedness across commodities, stocks, exchange rates and bonds markets in Africa: the Covid-19 pandemic case

Global uncertainty and the spillover of tail risk between green and Islamic markets: A time-frequency domain approach with portfolio implications

This study first calculates the left tail risks in the renewable energy, green, sustainable, Islamic equity and Islamic bond markets using CAViaR models. Then, applying TVP-VAR based connectedness method it estimates various measures of dynamic connectedness and spillover of the tail risks at short, medium, and long term. Furthermore, through wavelet coherence analysis it examines how various global uncertainties impact such connectedness in time and frequency domain. Lastly, it estimates hedging effectiveness, optimal portfolio weights and Sharpe Ratios to provide practical implications for the market participants. The results show that the tail risk connectedness and spillover are mainly driven by the short-term dynamics emphasizing the importance of short-lived noises in the transmission of down-side risks. Usually, the connectedness of the tail risks is higher during the period of COVID-19 and Russia-Ukraine war. Though the tail risks of Islamic bond and developing Islamic equity markets are mostly isolated in the full sample showing hedging potential of these markets, the network analysis shows their increased connectedness with other markets during the period of COVID-19 and Russia-Ukraine war. In general, mature market indices such as Dow Jones Sustainable World and MSCI global environment indices, Dow Jones Islamic World, US and UK market indices are consistently net contributors/transmitters of tail risk shocks while Islamic bond and developing Islamic equity market indices are net receivers of shocks when they are connected to the network. Two uncertainty indices, that follow volatility related to gold and US dollar, demonstrate hedging potential and predictive power on the connectedness. Dow Jones Islamic World market index usually carries significant weights in optimal portfolio allocations while Islamic bonds from GCC countries have higher Sharpe Ratios indicating their promise as instruments for risk-adjusted profit.

Dynamic interlinkages between carbon risk and volatility of green and renewable energy: A TVP-VAR analysis

Our paper applies a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach to investigate interlinkages among carbon emissions futures and the volatility of the renewable energy sector. The findings show that the system-wide dynamic connectedness realized a peak in early 2020 in the wake of the COVID-19 crisis. Net total directional connectedness proves that carbon emissions futures and wind energy play the roles of both net transmitters and net receivers of shocks in both periods – before and after the pandemic. The findings of this paper can support policy formulations to avoid rapid fluctuations in carbon prices, make the carbon price table, and limit the negative effect of carbon risk on the energy market, while promoting the protection of systemic financial risks in the renewable energy sector and ensuring a green energy supply.

Quantile frequency connectedness between energy tokens, crypto market, and renewable energy stock markets

Utilizing a quantile frequency connectedness approach, we explore the connectedness between energy tokens, crypto market, and renewable energy stock markets. The empirical results show that the connectedness measures of the series are characterized by asymmetry and heterogeneity across quantiles and different investment horizons. Specifically, the characteristic of clustering has been observed that energy tokens and crypto market are more interconnected, while the renewable energy stock markets are more interconnected with each other at median quantile. The linkages between energy tokens and renewable energy stock markets are quite weak under normal market conditions, suggesting the diversification opportunities in investing these financial assets. However, these series are more interconnected under extreme market conditions, with the renewable energy stock markets are on the dominating end of the propagation mechanism while the energy tokens and crypto market are net receivers of shocks. Further frequency decomposition shows that this strategy can hold in the short term, while in the long term investors could benefit from the diversification opportunities by investing both kinds of financial assets. Additionally, the dynamic analysis affirms that the connectedness measures are varied and event-dependent over time. Our results may help investors and policymakers have a better assessment and portfolio management.

Exploring downside risk dependence across energy markets: Electricity, conventional energy, carbon, and clean energy during episodes of market crises

This study examines the relationship of extreme downside risk in various energy markets, including electricity, clean/conventional energy, and carbon markets during several episodes of market turmoil (i.e., Global Financial Crisis, Shale oil revolution, COVID-19 outbreak and the Russian-Ukrainian war). The analysis combines the CAViaR and TVP-VAR techniques, covering the period from August 2005 to May 2023. The results reveal significant interdependencies between electricity and clean energy markets during times of market turmoil. Moreover, the study identifies the transmission of extreme downside risks in periods of crisis. Additionally, we find that including carbon and conventional energy assets in a portfolio with electricity and clean energy can offer diversification benefits. The analysis of net downside risk transmission shows that the crude oil market acts as a net receiver of shocks, while the alternative electricity market functions as a transmitter. Investors and policymakers can leverage these findings to develop appropriate measures that mitigate the adverse effects of extreme downside risk spillovers in different crises.

Fluctuations in gold prices in Vietnam during the COVID-19 pandemic: Insights from a time-varying parameter autoregression model

Vietnam ranks 37th in the world's ranking of national economies but has the largest gold consumption in Southeast Asia and the 7th largest gold consumption in the world. The price of gold in Vietnam often increases substantially in an abnormal way. Therefore, we employ a time-varying parameter vector autoregression approach based on extended joint connectedness to explain Vietnam's high gold price. We analyze the connectedness between five markets—the foreign exchange, the Vietnamese stock, gold, crude oil, and cryptocurrency markets—and the global gold traded in Vietnam from January 1, 2018, to August 1, 2021. Our results show heterogeneous connections at the system level. Vietnam's gold market appears to act as a net receiver of shocks, while other markets, such as cryptocurrencies, foreign exchanges, and stocks, act as net transmitters. One of the most critical transmitters among these channels is gold. The gold market in Vietnam has behaved differently over the course of the COVID-19 pandemic than it did in the past. The Vietnamese gold market appears to be a net receiver during uncertain periods, whereas it is a net transmitter in the normal course of events. Crude oil and world gold act as long-term transmitters of shock during the pandemic period. By contrast, cryptocurrency accounts for an insignificant portion of the fluctuations in Vietnam's gold market, and its role is limited to the short term.

Energy transition metals and global sentiment: Evidence from extreme quantiles

This paper examines the quantile connectedness between energy transition metals, defined as those needed for the transition from dirty to clean energy, and global economic and financial sentiment benchmarks. Using data for five metals, - namely, aluminum, cobalt, copper, lithium, and nickel, - and two sentiment indices over 2019–2022, we empirically demonstrate that the US Economic Sentiment Index (ESI) and Societe Generale Global Sentiment Index (SGGSI) are found to be net receivers of shocks across all four extreme quantiles: 0.05, 0.10, 0.90, and 0.95. Thus, it is shown that energy transition metal markets impact global sentiment, especially during stressed periods. We also document that the total connectedness/risk spillovers between clean energy metals and sentiment indices exhibit substantial increase in the extreme quantiles. Moreover, we provide empirical evidence that there is asymmetry in spillovers over time and across quantiles.

The nexus between global carbon and renewable energy sources: A step towards sustainability

The energy transition is at the core of sustainable development as it helps to combat global warming and climate change. Similarly, carbon markets also support the climate change mitigation. Therefore, by realizing the potential role of clean energy and carbon markets in ensuring environmental sustainability, this study analyzes the spillovers and connectedness between the environment (global carbon) and renewable energy sources (wind, solar, geothermal, biofuel, and fuel cell). The empirical analysis is conducted by applying the novel “TVP-VAR” connectedness framework of Balcilar et al. (2021) on the daily data over the period from August 1, 2014, to February 4, 2022. The findings show that solar and biofuel appear as the highest net shock transmitter among alternative renewable sources while global carbon is shown as the net receiver of shocks. The largest transmission of shocks to global carbon is observed from wind followed by solar. Although these findings support the connectedness between renewable energy and the environment, however this connectedness is influenced by economic crises such as the oil crisis and pandemic crisis. During COVID-19, the fuel cell was the highest transmitter of shocks. The results are important for policy formulation, investment, and portfolio management as they provide insights into the interconnectedness and help in boosting climate actions.