Net Receivers Research Articles

Frequency connectedness between DeFi and cryptocurrency markets

This study investigates the time-frequency spillovers across main DeFi (AVA, POWR, DOGE, MED, BAT, Link, Maker, and SNX) and four leading cryptocurrency markets (Bitcoin, Ethereum, Litecoin, and Ripple). The results show using the time-domain spillover index of Diebold and Yilmaz (2012) high connectedness across markets, underlying forecasting opportunities. Ethereum and Litecoin are the largest contributors and receivers of spillovers while MED is the lowest contributors of shocks in the system. Using the time-frequency spillover index by Baruník and Křehlík (2018), we show that the spillover at long term is higher than those at the short- and medium terms. BAT, LINK, and LTC are net contributors of spillovers at different time investment horizons while AVA, POWR, DOGE, and MED are net receivers irrespective of the time horizons. For the remaining market, they switch from net receiver to net contributor and vice versa. The major events (COVID-19, COVID-19 vaccination, and Ukraine-Russia tensions) intensify the dynamic of return spillovers at short-, medium-, and long-terms, implying contagion effects and a decline in the diversification benefits.

Return and volatility connectedness and net directional patterns in spillover transmissions: East and Southeast Asian equity markets

AbstractIn this article, we investigate the pattern and dynamics of return and volatility connectedness across East and Southeast Asian markets (referred to as the ASEAN5 + 5 group) by utilizing forecast‐error variance decompositions in a generalized VAR framework in conjunction with the Bai‐Perron procedure to control for structural breaks. Our analysis of the dynamics of return spillovers in static and time‐varying settings identifies that the stock markets of Singapore, Hong Kong and South Korea act as constant and largest net transmitters of shocks throughout the period from January 2003 to July 2021. The Chinese stock market is found to have the lowest return connectedness with other regional markets, which could be due to the local foreign ownership regulations. Visualization of the net pairwise return spillover network shows that Singapore is the sole net transmitter of shocks to all other markets in the ASEAN5 + 5 group, whereas, China, despite its market size is the sole net recipient. Two other markets in the regional group are identified as the net receivers, Japan and the Philippines, with the former becoming a net recipient from 2007. Our analysis of structural breaks shows that return spillovers across the markets intensify during periods of economic turmoil, financial shocks and the health crisis (COVID‐19), however, return to the pre‐shock levels during stable market periods. Further analysis of time‐varying patterns revealed that the dynamic connectedness across the region is not symmetrical and the influence of negative returns is more pronounced. The investigation of volatility spillovers shows no substantial differences. The stock markets generally retain their roles. Importantly, the time‐varying volatility connectedness exhibits similar patterns and tends to reach peak levels during turbulent episodes.

Time-frequency return connectedness between Chinese coal futures and international stock indices

This paper explores the return connectedness between Chinese coal futures (thermal coal and coking coal) and 16 representative international equity indices from Asia, America, Australia, and Europe. We employ a time-frequency connectedness methodology to capture time-frequency features of the return connectedness between Chinese coal futures and stock indices. The empirical results suggest that return connectedness between Chinese coal futures and equity indices is time-varying and heterogeneous at different frequencies. The evidence also indicates that the short-term (high-frequency) return connectedness is stronger than long-term (low-frequency) during the sample period, implying that high-frequency return connectedness dominates total return connectedness. Meanwhile, Chinese thermal coal futures (TCF) and Chinese coking coal futures (CCT) serve as net receivers of return spillover in the coal-stock connectedness system, whether long-term or short-term. Finally, we detect that the return connectedness between Chinese coal futures and emerging equity markets exceeds developed equity markets. Summarily, the return connectedness between Chinese coal futures and the international stock indices varies depending on the development degree of the equity market, coal varieties, and time-frequency scales. These new findings offer implications for investors, policymakers, and market participants.

Estimating U.S. housing price network connectedness: Evidence from dynamic Elastic Net, Lasso, and ridge vector autoregressive models

This paper investigates the dynamic connectedness of random shocks to housing prices between the 50 U.S. states and the District of Columbia. The paper implements a standard vector autoregressive (VAR) model as well as three VAR models with shrinkage effects — Elastic Net, Lasso, and Ridge VAR models. The transmission of real housing return shocks on a regional basis flows from Southern states to the other three regions, whereas the Northeast receives those shocks. The West receives shocks from the South and transmits shocks to the Midwest and the Northeast. Finally, the Midwest transmits shocks to the Northeast and receives shocks from the South and the West. Our results have important implications for policymakers and investors. To the extent that the housing market affects the business cycle, the Federal Reserve can monitor housing market movements in the net transmitter states to gather information about the beginnings of the housing market cycle. Moreover, the determination of which states or regions function as the main transmitter of shocks provides information to investors on acquiring housing assets in these markets rather than the ones that are more susceptible to such shocks as net receivers.

Connectedness between Pakistan’s Stock Markets with Global Factors: An Application of Quantile VAR Network Model

This study aims to provide important insights regarding the integrated structure of global factors and Pakistan’s leading sector-level indices by estimating the dynamic network and pairwise connectedness of the global crude oil index, MSCI index, European economic policy uncertainty index, and important sector-level indices of Pakistan based on QVAR using daily frequency over the period of 20 years from 2002 to 2022. The findings demonstrate high interconnectedness among global factors indices and Pakistan’s leading sector-level indices. The results of net directional connectivity showed that the EPEUI, WTI, and MSCI indices are the “net receivers” of volatility spillover. At the same time, the financial and energy sectors are the “net transmitter” of shocks. Connectedness is high amid financial upheavals. The research findings provide crucial insights for policymakers, businesses, portfolio managers, and investors.

Return and volatility connectedness among the BRICS stock and oil markets

This study revisits return and volatility contagion among the oil and the stock markets of BRICS over the period of September 14, 2001 to June 17, 2022 using connectedness approach. In terms of shock transmissions, empirical results indicate that the stock market in China and India are net receivers and that in Brazil, Russia and South Africa are net transmitters. In addition, the oil market is the net receiver as well. Both returns and volatility spillovers give us the same conclusions. This evidence provides important implications for the investors, practitioners and government.

Dynamic volatility connectedness in the European electricity market

Since the 1990s, one of the energy policy objectives of the European Union (EU) has been to create a single, integrated European electricity market. This study uses a broad set of European electricity markets to answer the question whether volatility connectedness is higher in geographically closer markets or whether all markets are integrated. This question is particularly relevant now, at a time of high volatility of energy commodity prices, which can affect energy security in Europe. Our empirical analysis examines volatility connectedness in 26 European electricity markets between 1 August 2007 and 23 February 2022 using the time-varying parameter vector autoregressive model (TVP-VAR) based on the extended joint connectedness method (Balcilar et al., 2021). Furthermore, the impact of volatility of determinants of electricity prices on volatility connectedness in European electricity markets since 2016 is assessed.The results reveal that volatility connectedness between markets, i.e., the integration of European electricity markets, increases. Connectedness within geographically closer markets is observed mainly in the initial periods. However, since 2016, regional connections have increased, which is accompanied by interregional connections. This is particularly evident in the recent period –characterised by high volatility of electricity and energy commodity prices. However, when the impact of volatility of electricity price determinants on volatility connectedness is removed, especially since 2021, the results are slightly altered and indicate lower volatility connectedness in the European electricity markets. The role of the main net transmitters or net receivers does not change, while the role of the other markets changes or strengthens/weakens. Inter-regional connectedness is not as strong, which means that volatility connectedness occurs mainly in the markets from the same region.

Natural resources and green economic recovery in responsible investments: Role of ESG in context of Islamic sustainable investments

This study investigates the dynamic interactions between fossil fuel-free, ESG, and carbon-efficient investments and government stimulus in Europe before and after COVID-19. Using time-varying analysis, results show ESG investments benefited most from stimulus packages when looking at average performance. However, separating pre- and post-pandemic periods revealed more nuanced results. Pre-COVID, least-volatile carbon-efficient companies spilled over to stimulus beneficiaries, but post-COVID they benefitted from them. Islamic-screened sustainable investments were net receivers regardless of period. In contrast, conventional ESG and fossil fuel-free industries behaved oppositely to low-risk eco-friendly firms, transmitting benefits to stimulus recipients. Causality tests confirmed spillover analysis, showing nonlinear causality from stimulus recipients to Islamic investments across conditions and low-risk climate-conscious investments at lower quantiles. In summary, this study provides new perspectives on chain reactions between government-supported firms and purpose-driven enterprises, helping recovery planners and policymakers make more informed sustainable investment decisions.

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.

Dynamic spillover effects of global financial stress: Evidence from the quantile VAR network

This paper investigates the spillover effects of financial stress at different quantile levels across the US, China, Eurozone, Japan, UK and India using a dynamic connectedness approach based on QVAR. The findings suggest significant spillover effects of financial stress among the six countries (regions), and the spillovers in extreme markets are apparently higher than those in normal markets. The US is the main transmitter of financial stress spillovers, while Japan and India are the net receivers. Furthermore, we show that the spillover effects of financial stress are time-varying, and the connectedness at the extreme upper and lower quantiles is asymmetric. In extreme markets, the directional spillover effects of China, India and Japan are significantly enhanced. These findings provide investors, regulators and governments with systematic insights to effectively identify and prevent financial risks.

A quantile-time-frequency connectedness investigation through the dirty and clean cryptocurrencies spillover

We analyze how the return connectedness between cryptocurrencies and environmental market indexes evolves in the last decade. The current study is the first to examine whether clean and dirty cryptocurrencies are linked to the U.S. environmental stock market indexes across time-frequency-quantile space. Using a time-frequency quantile connectedness approach, the main results are as follows: (i) the dynamic total connectedness indices are found to be heterogenous over the time-frequency space. (ii) Ethereum appears to be both short- and long-run net transmitters of shocks, while both U.S. environmental market indexes seem rather be both short- and long-run net receivers of shocks. Regarding Bitcoin, Cardano, and Ripple series, the net transmission/reception of short-term/long-term shocks is found to be time-varying. (iii) The majority of relationships among markets are time-varying in both short- and long-run net transmission positions. (iv) Over time-frequency quantile space, both short- and long-term dynamic total connectedness are found to be asymmetric, while the overall dynamic total connectedness seems to be symmetric. (v) The sensitivity of investors to clean and dirty cryptocurrencies-, and environmental market indexes-related shock spillovers tend to change over the quantile-time-frequency space. (vi) Important implications for investors and policymakers are also provided.

How Do Global Uncertainties Spillovers Affect Leading Renewable Energy Indices? Evidence from the Network Connectedness Approach

By using data from 2018 to 2022 and employing quantile VAR time-frequency and quantile VAR spillover models, this study investigates the spillover connectedness between global uncertainties, namely, geopolitical risk, economic policy uncertainty, and climate policy uncertainty, and seven leading global renewable energy indices. The results show strong total connectedness (82.87%) between renewable energy and uncertainty indices. DJRE, R&CE, MSCIEE, WRE_cpu, GEPU_C, and GEPU_P are found to be net receivers, and WRE to be net transmitters of spillovers. Additionally, the MSCIEE sector is the least connected, i.e., 2.51%, followed by the R&CE sector at 4.55%, while the ERE sector is the most connected one, i.e., 65.8%. We discover that the two market-based uncertainties have less impact than economic policy uncertainty (EPU), which has a significant impact. The conclusions have ramifications for decision-makers and investors in the renewable energy markets from the standpoint of sustainable development. The study reveals diversification avenues and recommends that investors consider MSCIEE and R&CE sectors for parking their funds because of lower risk, i.e., less connectivity and greater diversification.

Connectedness of non-fungible tokens and conventional cryptocurrencies with metals

Employing the vector auto-regression based on generalized forecast error variance decomposition, this paper investigates the connectedness of non-fungible tokens (NFTs) with precious and industrial metals and compares the results with those for conventional cryptocurrencies (CCCs). Our study scrutinizes separately the total static and the net dynamic spillovers of returns and volatilities from March 2018 to August 2021. We evidence that both, the total return and total volatility connectedness indices for the NFTs-metals framework are below the respective indices for the CCCs-metals framework, indicating new avenues for hedging and harvesting diversification benefits of NFT exposures. We provide empirical evidence that the NFTs are distinct from the CCCs not only in terms of the volatility spillovers, but in terms of the return spillovers too. In addition, we observe the decoupling in the net volatility spillovers between the precious and non-precious metals due to the COVID-19 meltdown. COVID-19 makes precious metals transmit volatility while industrial metals continue acting as net receivers of volatility shocks. Optimal weight and hedge ratios are presented for NFT-metal and crypto-metal pairs. These findings provide potential implications for investors and policy makers.

Dynamic spillover among the sectoral indices: Evidence from first and second waves of COVID-19

This examination endeavors to divulge the effects of the COVID-19 first and second waves on daily sectoral indices and volatility spillover in Indian markets. The empirical outcomes of the analysis reveal that the outbreaks of the first and second waves had a heterogeneous impact on the average value of eleven major sectoral indices. It also produces sufficient evidence of the assorted impacts of the first and second waves on volatility. The empirical outcome also confirms that the COVID-19 first wave led to greater uncertainty and intensification of volatility in the financial market as compared to the second wave. Finally, our research shows that the auto, banking, and Fast-moving consumer good (FMCG) sectors in India experienced higher volatility during the first wave of COVID-19, as these sectors contributed to the volatility in other sectors. However, consumer durables, metals, and oil and gas appear to have had the greatest impact on sectoral indices during the first wave, as they are a net recipient of volatility in the Indian financial market. On the other hand, on the basis of relevant outcomes, it can be surmised that the media, FMCG, and banking sectors demonstrated a high level of dominance on the other indices during the second wave of COVID-19 in India. However, consumer durables, pharmaceuticals, real estate, and information technology sectoral indices appeared mostly affected during the first and second waves of COVID-19, as they are net receivers of volatility in the Indian financial market.

Extreme dependence and spillovers between uncertainty indices and stock markets: Does the US market play a major role?

This study investigates the spillovers and connectedness between uncertainty indices of oil gold, and stock (VIX), the economic policy uncertainty (EPU) and international stock markets (US, EU, UK, Japan, China, and Vietnam) under bearish, normal, and bullish market conditions. We employ a cross-quantilogram and quantile connectedness approach to investigate the contemporaneous linkages and asymmetries among stock markets under various financial market uncertainty. Using the cross-quantilogram approach, we find strong cross-quantilogram dependencies from the US stock market to other markets, even after controlling for the uncertainties. We find greater spillovers under volatile market conditions—bearish and bullish—than under stable market conditions using the quantile connectedness approach. The financial volatility or uncertainty indices are net transmitter (receiver) of spillover in the stock markets, especially in the bearish and tranquil (bullish) market status. Furthermore, all markets and the uncertainty indices except the US, Europe, and the UK are net receivers of spillovers in the lower quantile, while VIX uncertainty index shifts to being a net transmitter of spillovers in the lower and median quantiles. In the upper quantile, Japanese stock market and the uncertainty indices are net receivers of spillovers. VIX is strongly linked to the US (Chinese) market in tranquil (bullish) market conditions. In addition, the maximum amount of spillovers was attained during the beginning of 2020, coinciding with the onset of the COVID-19 pandemic's first wave.

Interconnectivity and investment strategies among commodity prices, cryptocurrencies, and G-20 capital markets: A comparative analysis during COVID-19 and Russian-Ukraine war

Economic and political disorders have multidimensional impacts on all economies around the world. The global world has faced out COVID-19 pandemic in 2020, and now the Russian-Ukraine geopolitical crisis. This study investigates the nexus among commodities, crypto, and G20 capital markets along with risk and returns implications. To examine the impact, we applied the TVP-VAR technique suggested by Koop and Korobilis (2014), and Antonakakis, Chatziantoniou, and Gabauer (2020) by adjusting the framework of Diebold and Yilmaz (2012). The research findings reveal that a high level of connectedness was observed during Covid-19, which was persistent for a long period and has multidimensional impacts. More particularly, EU, Canada, France Germany, and the UK were the principal supplier of spillovers to other commodities, Bitcoin, and the remaining markets. During Geopolitical Crisis (here after GPC), conclusively it is observed that of USA, Brazil, Saudi Arabia, Canada, Mexico, China, Indonesia, and Japan are the net receivers of the volatility spillovers and Russia, Germany, France, European Union, Italy, UK, Argentina, India, Australia, Turkey, Korea, and South Africa are the net transmitters of volatility spillovers. Interestingly, among net transmitters Argentina, South Africa and Turkey are suffered from high inflation and substantial budget deficits, considered as weak economies of G20. Portfolio weights has been increased dramatically during COVID-19 and Russian-Ukraine war. This research could be utilized to take investment, hedging, and diversification decisions about commodities, cryptocurrencies, and stocks, particularly in such turmoil situations with the help of connectedness and various hedging techniques.

Does Regional Integration Insulate Member Countries from External Spillovers? Studying Trade Shock Transmission between ECOWAS and the Global Economy

To ascertain if regional economic integration insulates member countries from external spillovers, this work studied the transmission of trade shocks between ECOWAS and the global economy. It adopted the Diebold and Yilmaz (2009) network approach using quarterly data from 1986Q1to 2019Q4 for selected countries. Data were subjected to preliminary tests using the Phillip-Peron unit root test to establish the order of statonarity and Johansen co-integration test to establish existence of co-integration among variables. Following results of preliminary tests, the underlying VAR model was estimated in error correction form. The forecast error variance decompositions (FEVDs) were subsequently generated and used to build generalized trade linkage measures for analysis. Result of the analysis show that ECOWAS economies are highly linked to the global economy, and are net receivers of trade shocks. The study recommends ECOWAS countries diversify to heavy industrial manufacturing, fashion out uniform trade policies to insulate the region from potential trade shocks.

An application of QVAR dynamic connectedness between geopolitical risk and renewable energy volatility during the COVID-19 pandemic and Russia-Ukraine conflicts

The article is the first to employ a quantile vector autoregression (QVAR) to identify the connectedness between geopolitical risks and energy volatility from January 1, 2015, to April 03, 2023. This paper is also the first to examine the mediating roles of uncertain events like the COVID-19 pandemic and the Russia-Ukraine conflict on this interlinkage. Dynamic connectedness is 29% in the short term and approximately 6% in the long term. Dynamic net total directional connectedness over a quantile also indicates that connectedness is very intense for both highly positive changes (above the 80% quantile) and negative changes (below the 20% quantile). In the short term, the geopolitical risks remained net receivers of shock, but they turned into net shock transmitters during 2020 in the long term. Clean energy, in the short term, transmits shocks to other markets, and it plays the same role in the long term. Crude oil was a net receiver of shocks during COVID-19 and turned into a net transmitter of shocks in early 2022. Dynamic net pairwise directional connectedness over a quantile suggests that uncertain events like the COVID-19 epidemic or the Russia-Ukraine conflict influence the dynamic interlinkages between geopolitical risks and renewable energy volatility and change their roles in the designed system. These findings are critical since they help authorities develop effective policies to lessen the vulnerabilities of these indicators and minimize how widely the renewable and non-renewable energy market is exposed to risk or uncertainty.

Shock transmission between crude oil prices and stock markets

This paper investigates the connectedness between crude oil prices and several financial stock markets from January 2000 to February 2023, applying a Dynamic Conditional Correlation Skew Student Copula model and the connectedness index by Diebold and Yilmaz (2012). The Kendall’s Tau correlation findings show that prior to the Global Finance Crisis, equity markets were less linked to BRENT than after the crisis, likely because of economic growth reducing the importance of oil prices. However, from late 2008 to 2023, global uncertainty due to various crises and conflicts led to greater correlation among oil prices and major equity indices. Importing countries showed negative pairwise dependence with BRENT more frequently than exporting countries, which can be attributed to their economic structure and dependence on oil. Thus, BRENT can serve as a hedge asset for equity investments in importing countries and just as a diversifier for exporting countries due to its weak negative correlation. Additionally, stock markets within oil-exporting countries, such as Norway (OSEAX) or Russia (RTS), are net receivers. The study concludes with a detailed analysis of connectedness in terms of the returns and volatility among crude oil prices and stock markets not only during different political and financial events but also in the aftermath of natural disasters that have affected the interdependencies between them. The results prove that the occurrences that influence the correlation between stock markets and BRENT do not have such a significant impact, but the spillover effect of these events dissolves at a leisurely pace. The findings of this study clearly show implications for various market participants, policymakers, and portfolio managers.

Spillover analysis across FinTech, ESG, and renewable energy indices before and during the Russia–Ukraine war: International evidence

AbstractThis study is epicentral to analyze the impact of the Russia–Ukraine war on the financial markets, specifically focusing on the connectedness and spillover dynamics of FinTech, Environmental, Social, and Governance (ESG), renewable energy, gold, and Morgan Stanley Capital International (MSCI) indices in developed and emerging countries. Data are collected from Thomson Reuters, ranging from May 8, 2020, to May 11, 2022, and a time‐varying parameter vector autoregression (TVP‐VAR) and the dynamic conditional correlation (DCC) generalized autoregressive conditional heteroskedasticity (GARCH) t‐Copula (DCC‐GARCH t‐Copula) are used to analyze the data. The results show that FinTech, ESG, and MSCI are net transmitters in developed countries, whereas gold and renewable energy are net receivers pre‐ and during war periods. ESG and MSCI are net transmitters in emerging countries, while FinTech, renewable energy, and gold become net receivers in both periods. The hedging ratio sheds light on the costs and weights of efficient pair investments that might change in the context of each region and under the combined scenario. The study has important implications for merchant bankers, policymakers, investors, hedgers, and risk managers.