Net Recipients Research Articles

Time-frequency spillovers and connectedness between Chinese climate risk perception and energy markets

Abstract With the global warming is becoming more and more serious, the global need for low-carbon economic transition is increasingly urgent. This study focuses on the time-frequency spillover effect of climate risk perception and energy market. By constructing transition risk perception and physical risk perception index and using time-frequency analysis, we quantifies the impact of climate risk perception on fossil energy and clean energy markets, and reveals the dynamic relationship between the two. The findings indicate that China’s sense of transition risk from climate change has increased since the Paris Climate Agreement, but the perception of physical risk has changed less. Moreover, the spillover effect between climate risk perception and energy markets is time-varying and increases rapidly in the face of climate or energy related uncertain events. The COVID-19 pandemic has resulted in a sharp drop in total spillover, and there is little near-information spillover between the energy markets and perceptions of climate danger. We also found that in the short term, energy market spillovers are net recipients of climate risk perception according to marginal spillover research. However, this connection changes to become a net transmitter from 2021. In the medium to long term, the perception of climate risk begins to function as a net transmitter of spillovers to energy markets.

Connectedness between international oil and China's new energy industry chain: A time-frequency analysis based on TVP-VAR model

With the growing prominence of global environmental concerns, the interplay between the oil and new energy industries has become increasingly vital. We employ a connectedness approach based on the TVP-VAR model to explore the dynamic connectedness in both time and frequency domains between the oil and various industries within the new energy industry chains. Empirical findings reveal total connectedness of approximately 70 %, primarily manifested as inter-industry associations within the new energy industry and total connectedness predominantly emerges in short term and is sensitive to extreme events. Additionally, the oil and wind power industries have consistently played roles as net recipients of risk. Conversely, the photovoltaic, energy storage, and new energy battery industries have consistently acted as net risk propagators. The roles of the hydroelectric, nuclear power, and new energy vehicle sectors in risk propagation vary with different frequency components. Thirdly, we identify six pairs of industry combinations exhibiting significant two-way spillover effects. Finally, after two robustness tests, the above conclusions remain valid. These research findings offer valuable insights for policymakers and investors.

Connectedness and Shock Propagation in South African Equity Sectors during Extreme Market Conditions

This study examined the connectedness and propagation of risk in the South African equity sectors during the Global Financial Crisis (GFC), the European Debt Crisis (EDC), the US–China trade war, and the COVID-19 pandemic. Daily returns of nine Johannesburg Stock Exchange (JSE) super sectors were examined from 3 January 2006 to 31 December 2021. Applying the connectedness matrix and time-varying parameter vector autoregressive (TVP-VAR) model, in full sample and sub-periods, the study showed that dynamic total connectedness of the super sectors is high in absolute form (62%). Furthermore, it was found that the highest volatility connectedness was during the EDC (68.83%) and during the COVID-19 pandemic (68.57%), followed by the GFC (63.16%) and lastly the US–China trade war (42.09%), respectively. This suggests that the tendency for a systemic risk is highest during the EDC, COVID-19, and GFC periods, and lowest during the US–China trade war. The financial sector was the primary net-transmitter of shocks during the COVID-19 period, while the automobile and parts sector was the strongest net-transmitter of shocks during the GFC, EDC, and US–China trade war. Similarly, the strongest net recipient of shocks during GFC, EDC, and COVID-19 is the chemical super sector. The study concludes that there is a significant volatility connectedness among JSE super sectors. In addition, the JSE super sectors exhibit time-varying connectedness during extreme events. Moreover, the net-transmitter and net-receiver of shock do not change significantly during different crisis periods. The policy implications of the findings are highlighted in the concluding section.

Extreme time-frequency connectedness between energy sector markets and financial markets

The renewable energy market has developed into a distinct asset class that has garnered significant attention from investors worldwide. This study investigates the connectedness between the S&P 500 and various energy sectors, including the Green Bond (Green Bond), S&P GSCI Carbon Emission Allowances Index (GSCI EUA), S&P GSCI Biofuel (GSCI Biofuel), and S&P Global Clean Energy Indices (Global Clean Energy). Combining the quantile connectedness approach of Ando et al. (2022) and the spillover index developed by Chatziantoniou et al. (2022), we investigate the quantile time-frequency connectedness among these markets. Our findings reveal that the impact of tail risk spreading to the energy sector during extremely challenging market conditions is significantly amplified. Most tail risk spillovers between the energy sectors involve short-term risk spillovers, as seen by analyzing the frequency domain. The impact of tail risk spillover is stronger during extreme situations, showing a short-term asymmetry. Global Clean Energy and the S&P 500 play important roles in spreading risk to other sectors, known as tail risk spillover. They add to the overall risk that affects the network system. On the other hand, other energy sectors (GSCI EUA and GSCI Biofuel) as well as green bonds act as net recipients by receiving the risk rather than spreading it further, potentially providing portfolio diversification. It is essential to understand how these key players influence risk in the financial system. Utilizing a variety of techniques to assess portfolio performance shows the importance of understanding the return transmission mechanism in the process of developing a portfolio and suggests that Clean Energy, given its relative independence, may make an excellent diversification investment.

Dynamic spillover between green cryptocurrencies and stocks: A portfolio implication

Using the novel TVP-VAR connectedness approach, we investigate the spillovers of return and volatility as well as the portfolio diversifications between green cryptocurrencies and green stocks. The empirical findings demonstrate that there are considerable return and volatility spillovers across green cryptocurrencies and stocks. Stock indices such as Alternative Energy, Sustainable World Index, and Pollution Prevention act as net transmitters whereas Green Building stock and green cryptocurrencies act as net recipients of return and volatility spillovers. Sustainable World Index and Pollution Prevention stocks spread relatively stronger net spillovers to other green stocks and cryptocurrencies. The overall spillover effects and hedging costs become higher during the COVID-19 pandemic and the Russia-Ukraine war. Utilizing green cryptocurrencies like Cardano and Stellar Lumens as hedges for green stocks can provide superior risk reduction effectiveness. Our findings can offer practical implications for investors, portfolio managers, and regulators in developing their optimal investment and risk management strategies.

Spillover Effects between Oil, Gold, Stock, and Exchange Rate Returns in Thailand: An Extended Joint Connected TVP-VAR Approach

The objective of this study is to analyze the spillover effects among the returns of oil, gold, the stock market, and exchange rates in Thailand. Using the time-varying parameter vector autoregression model (TVP-VAR) with extended joint connectedness and data from April 2002 to March 2024, our analysis reveals a moderate level of the dynamic linkage among these returns. We observe that the dynamic connectedness among all returns varies over time, influenced by global economic events and country situations. Notably, in Thailand's landscape, stock market and gold returns act as net shock transmitters, with the stock market exhibiting the highest volatility among all variables, while oil and exchange rate markets function as net recipients. These insights significantly contribute to understanding asset and commodity markets and offer valuable policy implications for effectively managing these markets.

Islamic cryptocurrency integration for enhanced sustainable finance: evidence from time-frequency volatility transmission investigation

ABSTRACT This study explores the potential of Islamic gold-backed cryptocurrencies in sustainable finance by focusing on volatility transmission between these cryptocurrencies and conventional digital assets like Bitcoin and PaxGold. Using a Time-Varying Parameter Vector Autoregression (TVP-VAR) approach, we analyze data from December 2019 to July 2023, including the COVID-19 pandemic period. Findings reveal a complex volatility network, with Bitcoin and HelloGold as major transmitters of spillover shocks, while X8X and PaxGold mainly serve as net recipients. Notable interactions between Bitcoin and Islamic gold-backed cryptocurrency markets show short-lived pairwise volatility interactions. Islamic gold-backed cryptocurrencies, net recipients of volatility, absorb market shocks, making them suitable for hedging against volatility. This can aid in diversifying portfolios, mitigating adverse market impacts, and informing risk management and regulatory approaches. Our research emphasizes the importance of Islamic finance in ethical and sustainable investment within the evolving cryptocurrency market.

Return and volatility connectedness between agricultural tokens and us equity sectors

This study investigates the return and volatility interconnectedness between emerging digital assets, specifically agricultural tokens, and U.S. equity sectors using the TVP-VAR model. Analyzing data from August 7, 2020, to January 2, 2024, the findings indicate modest interconnections between agricultural tokens and U.S. sectors, with time-varying behavior. Notably, return interconnectedness is generally stronger than volatility, except at the sample period's outset, where volatility dominates. Return spillovers predominantly drive the connectedness system, though agricultural tokens uniquely act as net recipients of both return and volatility spillovers, while U.S. equity sectors mainly transmit spillovers. Optimal portfolio analysis, utilizing portfolio weights and hedge ratios, reveals that incorporating agricultural tokens offers portfolio diversification benefits and enhances hedging performance. Investors are advised to frequently adjust portfolios to maximize diversification and hedging gains. These findings provide significant portfolio implications for policymakers, market participants, and investors.

Dynamic interconnectedness of economic confidence, energy prices, and interest rates: Insights from the euro area

This work examines the time-varying interlinkages among economic confidence, energy prices, geopolitical stress, and short/long-term interest rates in the Euro Area. Our research meticulously explores the interplay between economic confidence and various determinants, including financial indicators, geopolitical stress incidents, and energy prices. Employing innovative approaches such as the time-varying parameter vector autoregression (TVP-VAR) time and frequency-domain connectedness, we uncover the nuanced relationships between economic confidence, financial indicators, and energy prices. We illuminate the systemic nature of shock transmission in the Euro Area, identifying key net transmitters and recipients of shocks, with short-term interconnectedness emerging as a dominant feature, especially during pivotal events such as the global financial crisis, the COVID-19 pandemic, and geopolitical conflicts. Our empirical findings can be summarized as follows: First, both the time and frequency-domain connectedness indexes correctly associate with major financial/geopolitical events. Second, BCI and CCI respond to the GFC asymmetrically. Third, Brent and short/long-term interest rates are the net transmitters of shocks on average. Fourth, there is a considerable augmentation in return spillovers during the period characterized by the pandemic crisis compared to the GFC. Finally, our findings for frequency-dependent connectedness networks indicate that the market is particularly susceptible to short-term shocks. This study has significant ramifications for investors, market players, and policymakers.

What drives the high-risk spillover of benchmark oil prices into China's LNG market?

The Russo-Ukrainian conflict and its reverberations on energy markets have heightened concerns regarding energy security. Against the backdrop of fluctuations in international oil prices, oil-gas linkage pricing severely jeopardizes the security of the Chinese gas market. Clarifying the mechanism of high-risk spillover of international oil prices to Chinese LNG is essential for the safe operation of gas. We examine the dynamic spillover effects of Brent, WTI, Dubai crude oil, and Chinese LNG prices using the dynamic connectedness based on TVP-VAR. We innovatively establish the BART-QCA framework to screen the conditions and identify pathways that exacerbate the high-risk spillover of international oil prices to Chinese LNG. The study finds that: (1) Chinese LNG prices are net recipients from the three primary crude oil prices. (2) four pathways exacerbate the high-risk spillover, confirming the situational characteristics of high-risk spillover. (3) The increase in global economic policy uncertainty and China's high external dependence on gas are essential conditions for the high-risk spillover. (4) three pathways mitigate the high-risk spillover. A clear global economic policy situation, reasonable control of public opinion, and the weakening of the US dollar help alleviate high-risk spillover. Accordingly, new policies should achieve scenario-based governance through cross-market and multi-sectoral synergies.

The nexus between mineral, renewable commodities, and regional stock sectors during health and military crises

We examine the return and volatility spillover dynamics and their portfolio implications among regional stock super-sectors, mineral (Energy, Industrial, and Precious Metals), and renewable (Agricultural and Livestock) commodities. To this end, we apply the time-varying parameter-vector autoregressive (TVP-VAR) model to analyze the intersectoral-commodity linkages separately in four major regions (Europe, Eastern Europe, Asia Pacific, and North America). The empirical results show that stock market sectors dominate the spillover transmission mechanism, while commodities emerge as net recipients of shocks. Moreover, we find heterogeneous connectedness patterns between stock sectors and commodities, predominantly running from the Energy and Basic Resources stocks to the Energy and Industrial Metals commodities. Thus, energy commodities play a more vital role as a spreader of volatility shocks amid the COVID-19 pandemic and the wake of the Russia-Ukraine war. The optimal portfolio weights reflect two episodes of “flight to safety” towards all commodities except Energy, triggered by the pandemic and the war, as investors decrease their fund allocation to stocks in favor of commodities.

Not all REITs are alike: modelling the dynamic connectedness of sectoral REITs and the US yield curve

ABSTRACT We model the dynamic connectedness between key sectoral REITs and the yield curve’s constituents. We employ both return and volatility of REITs and conduct analysis in static as well as time-varying framework. Our static analysis reveals Office REITs as the net spillover transmitter to the system, whiles Mortgage, Timber, and Infrastructure REITs are net recipients of return and volatility spillovers. We document that despite the high interdependencies between sectoral REITs, their response to return and volatility spillovers is heterogenic. Our findings divulge low idiosyncratic spillovers in sectoral REITs, suggesting that controlling the transmission and admission of exogeneous shocks need to be paramount to both investors and policymakers. Our dynamic analysis discloses the consistency of Industrial, Mortgage, and Timber REITs as diversifiers (safe havens) in tranquil (tumult) trading periods. We document contagion in the connectedness of sectoral REITs during crises periods. Therefore, timely policy actions in stressed market conditions are recommended to lessen the degree of effect on fundamental cross-sector linkages through contagion. We discuss the implications of our findings for portfolio management and market regulation.

Information spillover among cryptocurrency and traditional financial assets: Evidence from complex networks

This study aims to investigate the information spillover among four traditional financial assets (i.e., crude oil, gold, stock, and U.S. dollar) and nine main cryptocurrencies (i.e., Bitcoin, Cardano, Dai, Ripple, Dogecoin, Ethereum, Ethereum Classic, Monero, and Tether), by constructing entropy-based information spillover network and information integration network from both static and dynamic perspectives. The empirical results show that the information spillover among these assets is time-varying, experiencing an obvious increase trend after the COVID-19. As a whole, traditional financial assets mainly play the role of net information transmitter while cryptocurrencies mainly play the role of net information recipient. Tether and Dai are the two main visual coins that can transmit net information flow to traditional assets, while gold and stock are the two main traditional assets that transmit net information flow to cryptocurrencies. Tether and U.S. dollar are the central nodes that link traditional financial assets and cryptocurrencies together.

Time-varying connectedness between sport cryptocurrency and listed European football stocks: evidence from a LASSO-VAR approach

ABSTRACT Digital assets and the traditional financial sectors are increasingly interacting. In the field of cryptocurrency, the combination with the sports industry has received attention from fans and clubs, media, and academic circles. Based on the LASSO-VAR model which is suitable for large samples, this article investigates the connectivity between sports cryptocurrency Chiliz (CHZ) and listed European football club stocks. The results show that there is a certain interrelatedness among the selected assets, and it becomes closer with the outbreak of major emergencies. In addition, CHZ is a net recipient of spillovers, while club stocks show diversification. Our results are helpful for club fans, individual and institutional investors, market regulators, and policymakers to make correct decisions.

Non-fungible tokens and metal markets: time-varying spillovers and portfolio implications

ABSTRACT The linkage between the metal market and crypto assets is a topic of concern. Utilizing a novel TVP-VAR framework, this study examines the volatility transmission between NFTs and precious/industrial metals. The results show strong connectivity, with most NFTs being net transmitters, and industrial metals being mostly net spillover recipients. Moreover, the connectivity was affected by the COVID-19 epidemic and the Russia-Ukraine War. Considering the potential reference value that this empirical fact may bring to market participants, this paper divides the time samples and uses the DCC-GARCH t-copula method to analyse the portfolio construction of every sub-sample. The research investigates and compares the hedge ratio, optimal weights, and hedging effectiveness of NFT-industrial metals and NFT-precious metals. These findings can bring potential inspiration to investors, market regulators, and policymakers.

Asymmetric Return Connectedness Among Indian Equity Sectors: Insights from Recent Global Disruptions

This article aims to study asymmetric shock transmission among India’s National Stock Exchange sectoral indexes before and amid the COVID-19 crisis and the Russian–Ukraine feud using an asymmetric time-varying parameter vector autoregressive connectedness technique. The daily closing price of equity sector indexes from 1 January 2018 to 31 March 2023 were used. The research reveals strong sectoral return interconnectedness, with negative returns spillover dominating the assessment period. COVID-19 substantially impacted connectedness more than the Russian–Ukraine feud. The sectors such as bank, private bank and financial services were net transmitters of risk, and information technology was the net recipient of risk throughout the assessment period, indicating these sectors are not much affected by these crises. Sector return spillover patterns were similar during the epidemic and the Russian–Ukraine dispute, except for the oil and gas and metal sectors, which shifted roles. These findings suggest that policymakers must recognize and assess the peculiarities of industries that are high-risk transmitters when formulating strategies to prevent market failure or mitigate risk transmission to others. Investors may benefit from recognizing industries that operate as risk transmitters and receivers to create effective risk-mitigation investment strategies amid turbulent times.

Spread and mitigation of antimicrobial resistance at the wildlife-urban and wildlife-livestock interfaces.

Antimicrobial resistance (AMR) is a health issue common to all One Health domains. Scientific understanding of what drives AMR and how it spreads is continually expanding. One such dimension of this expanding base of knowledge is the role wildlife populations play as reservoirs and spreaders of AMR. Indirect and direct sharing of resistant pathogens between wildlife and domestic animals occurs in a variety of ways across both the natural and built environment. Though AMR is found across much of the Earth's biome naturally, elevated levels in wildlife are largely attributed to the use of antimicrobials in human and veterinary medicine, along with other uses of antimicrobials in human industry. On the basis of current research, wildlife species appear to be net recipients of AMR overall. However, wildlife can carry and spread AMR across individual ecosystems and to other ecosystems via water, soil, arthropod vectors, and several other routes of conveyance. In addition to creating potential health issues for wildlife animals themselves, this potentially poses risks for both companion and production animals. This is especially due to urban/suburban and rural wildlife, respectively. If health practitioners and other stakeholders are adequately aware, measures can be taken to reduce risks across each interface discussed. The companion Currents in One Health article by Vezeau and Kahn, AJVR, June 2024, addresses in further detail the many wildlife reservoirs of AMR that are currently identified, as well as directions for further research.

Electricity market crisis in Europe and cross border price effects: A quantile return connectedness analysis

As the interconnection of the European electricity markets and integration of renewables progresses, there is little known about interconnectedness across them at times of market turbulence. The electricity crisis of 2021 and 2023 were significant events that can also provide lessons in the behaviour of integrated markets with high renewables under stress. Despite the impacts of the COVID-19 pandemic and the Russia-Ukraine war on the European energy market, little is known about their effects on the transmission of risks between the electricity markets. We employ the quantile connectedness approach to quantify the return connectedness between eleven key European markets, as well as the natural gas and carbon markets. We then examine the effect of the two crises on the interconnectedness. We find significant return interconnectedness, driven by spillover effects, among the markets. Analysis of connectedness across quantiles shows that the spillover effects are much stronger at tail ends of conditional distribution. Moreover, our results reveal opposite effects from crises on market interconnectedness. While the COVID-19 pandemic reduced the interconnectedness, the Russia-Ukraine war intensified the return shock transmission. Finally, we find that the natural gas and carbon markets are net recipients of return shocks across the quantiles.

EU Debt Instruments and Fiscal Transparency: The Case of the EU Recovery Fund

Abstract We study the transparency of debts incurred for the EU Recovery Fund. In our opinion, the Recovery Fund lacks transparency at various levels. We find that the Fund implements a hidden transfer scheme that splits member states into net contributors and net recipients. As a result, the national budgets of the EU member states will have to face uncertain future obligations. Finally, we hold that the Fund weakens the European fiscal rules because the debts of the Recovery Fund do not add to the national debt levels. The national debt levels therefore do not show the whole burden.

The Euro Area 12: A Comparative Assessment of Its Member States in the Period 1998–2022

The primary objectives of this research are to compare the economic performance of the Member States (MS) in the Euro Area 12 (EA-12) of the European Union (EU) that served as net contributors and net recipients of its budget during the period 1998–2022. The comparison focuses on aspects related to economic growth and the business cycle, exploring the presence of hysteresis. To achieve these objectives, a novel approach is employed, which integrates the analysis of both growth and cycles. This approach involves using the Seemingly Unrelated Regression Equations (SURE) model to estimate a translog production frontier and assess the impact of lagging output gaps on the potential output or capacity for each of the MS considered. The data used to estimate each frontier and analyze growth decomposition consist of quarterly data filtered using the Kalman filter. The results reveal that lagging output gaps, occurring one or two quarters prior, significantly affect the potential output or capacity of the EA-12 MS, thereby supporting the existence of hysteresis. However, the impacts appear to be minimal. Furthermore, the research concludes that changes in total factor productivity (TFP), mainly due to technical change, play a more crucial role in the growth of MS that are net contributors to the EU budget. Conversely, total factor accumulation (TFA), mainly physical capital accumulation, has a more pronounced impact on the growth of MS net recipients from the EU budget. Interestingly, the heterogeneity observed among the EA-12 MS extends beyond the simple division between net contributors and net recipients of the EU budget. This heterogeneity raises questions about the European Central Bank’s (ECB) ability to stabilize the economies of these various MS solely through conventional monetary policy.