Net Transmitters Research Articles

African stock markets’ connectedness: Quantile VAR approach

The present paper investigates African stock markets’ linkages by considering stocks in the continent’s largest economies, specifically Egypt, Kenya, Morocco, Nigeria, South Africa, and Tunisia. Using a dataset that spanned November 25, 2008, to September 18, 2023, the quantile connectedness approach of Chatziantoniou et al. (2021) is employed, and the results unfold these interesting dynamics of African market connectivity: (i) In the bearish market phase, South African stock dominated the entire network, transmitting shocks to the remaining stocks, while Moroccan and Kenyan stocks played similar role mildly. (ii) In the bullish market phase, Nigerian stock dominated the market as a major net transmitter of shock supported by South African and Kenyan stock markets. (iii), The Egyptian and Tunis stock markets are net shock receivers in both the bear and bull market phases. (iv), At the median quantile value, stocks become less riskier and the Kenyan stock market becomes the most vulnerable while Nigerian, Egyptian, and South African stock markets are influenced by other stock markets when markets are calm. (v), Though, African stocks are underperforming, interested portfolio managers will learn from the trading strategies to be adopted to maximize their returns. These findings will benefit portfolio managers, international stakeholders, and regulators.

On the propagation mechanism of international real interest rate spillovers: evidence from more than 200 years of data

ABSTRACT This article analyzes the real interest rate transmission mechanism across the United States, Japan, France, Germany, Holland, Italy, Spain and the United Kingdom over a period of more than 200 years. Based on a time-varying parameter vector autoregressive (TVP-VAR) connectedness methodology, the empirical results suggest that the size of the international real interest rate spillovers ranges between 30% and 75% across the sample period. Furthermore, it is shown that these spillovers increase during crisis periods, such as the two World Wars, the Great Depression of 1929, the 1980 and 1990 recessions, or the Great Financial Crisis of 2009. More interestingly, our findings illustrate the position of each of these eight countries as net transmitters or receivers of monetary policy shocks over time. Our analysis contributes to the debate on whether the conduct of monetary policy in a country should consider its international spillovers, suggesting the need for more coordinated monetary policies especially during periods of economic crises.

The dynamic connectedness between macroeconomic uncertainty and commodity volatility: evidence from China

ABSTRACT We investigate the dynamic connectedness between Chinese macroeconomic uncertainty and volatility in Chinese commodity markets, controlling for international macroeconomic uncertainty, international commodities and Economic Policy Uncertainty Index (EPU), and adopting an approach that combines the Diebold – Yilmaz connectedness measure with the time-varying VAR model. Our empirical results indicate that Chinese macroeconomic uncertainty was the main net transmitter of the commodities commonly used in manufacturing, such as chemical engineering materials and non-ferrous metal, over the whole sample period, and had a considerable impact on these commodities due to the production shutdown caused by COVID-19 containment measures. This indicates the important role of Chinese macroeconomic uncertainty on the supply and demand sides. As China is the largest manufacturing country, macroeconomic uncertainty in this nation has had a significant and increasing influence on international commodities, especially when there occur events that severely affect global production activity. However, the impacts of EPUs on commodity volatilities were limited compared with the effects of Chinese macroeconomic uncertainty, especially during the COVID-19 pandemic, demonstrating that macroeconomic uncertainty, which reflects uncertainty about future aggregate supply and demand, plays a more crucial role in driving the volatility of commodities with stronger production attributes.

Extreme connectedness between NFTs and US equity market: A sectoral analysis

This study examines the returns connectedness between NFTs and US sector stock markets. For this purpose, we use the recently developed technique of quantile-based regression to explore the dependence structure under various conditions. Our results support the view that connectedness between NFTs and sectoral markets is characterized by asymmetry and heterogeneity in the extreme conditions compared to the median quantile and mean-based approach. Under normal conditions, all NFTs except the ENJ are net recipients of the return spillover from the sectoral stock markets, whereas, financial, consumer staple, and industrial stocks are major net transmitters to the system. However, we observe heterogeneity at both tails, as all NFTs act as net transmitter (recipient) at the higher (lower) quantiles. This confirms the asymmetric dependence structure. We also compute the static optimal weights and hedge ratios using TVP-VAR model for the stocks/NFTs portfolios and show that investors and portfolio managers may consider including NFTs in their holdings to achieve diversification benefits.

From black gold to financial fallout: Analyzing extreme risk spillovers in oil-exporting nations

Considering various critical periods including the COVID-19 pandemic and the ongoing Russian–Ukraine war, this paper investigates the dynamics of extreme spillover effects from the crude oil market to the financial markets of major oil-exporting countries. With the increased integration of global financial systems, oil market fluctuations can have far-reaching implications for economies that are heavily reliant on oil exports. We employ a wavelet approach to explore the co-movement and lead–lag relationships between the oil market and the financial markets of the considered countries. Next, we follow the newly introduced frequency-based connectedness approach of Hanif et al. (2023) to explore the dynamic connectedness and risk transmission among these markets. First, results from the wavelet coherency technique show that the degree of co-movement during the Russia–Ukraine war was significantly lower than it was under both the pre-crises and COVID-19 pandemic periods as shown by fewer regions with warmer colors (red), which show significant dependence at the 5% level, especially for Canada. Secondly, the dynamic connectedness of these markets was largely driven by long-term dynamics during the Russia–Ukraine crisis period, unlike the short-term driven connectedness observed during the COVID-19 pandemic. The average degree of connectedness at high frequencies (short-term) forms a smaller proportion of the average level of connectedness at low frequencies (long-term), indicating a stronger long-term influence of the crisis on the interconnectedness of these markets. Additionally, we find that Canada and the United States were the major net transmitters of shocks to the network during the conflict period, while Iraq exhibited the strongest level of idiosyncratic shocks. Interestingly, the crude oil market was observed to send stronger shocks to the network at the onset of the war, with the impact gradually diminishing as the conflict progressed. Our study provides valuable insights for policymakers and investors as a guide towards more informed decision-making and appropriate risk management strategies in the face of oil price volatility in these regions.

Higher-order moment connectedness between stock and commodity markets and portfolio management

This study examines the spillover in high-order moments for major stock markets in Europe, Japan, the UK, and the US (STOXX50, FTSE100, SP500, and NIKKEI225), and two representative commodities (Brent crude oil and gold futures) using 5-min data from January 1, 2020, to May 31, 2022. The results show that spillovers vary across order moments, which are larger for realized volatility and jumps than for realized skewness and kurtosis. Moreover, gold is a net receiver of spillovers for all order moments, whereas oil switches from a net receiver of spillovers under both realized volatility and jumps to a net transmitter of spillovers in realized skewness and kurtosis spillovers. The US stock market is a net transmitter of spillovers in all realized moments, whereas other stock markets shift from net receivers to net contributors based on the moments. Furthermore, spillovers in high-order moments vary over time, and their trends behave differently over time. The spillovers in high-order moments increase during different phases of the COVID-19 and Ukraine-Russia wars. These findings have significant implications for fund allocations and financial risk management.

Second-order moment risk connectedness across climate and geopolitical risk and global commodity markets

Extant literature has visited the impact of climate and geopolitical risk (GPR) on cross-market linkages. However, it falls short in examining the risk of spillover in the commodity market during wartime and natural disasters. Using the second moment, we look into the risk spillover and connectedness between climate and geopolitical risk and commodity market and highlight that climate and geopolitical risk are net transmitters of shocks in the network. The results also show the loss of hedging abilities of precious metals against GPR. These findings are significant for policy and for the investors.

Carbon volatility connectedness and the role of external uncertainties: Evidence from China

This paper investigates the volatility connectedness between China’s carbon pilot markets. Using Diebold and Yilmaz (2014)’s approach based on the time-varying parameter vector autoregression model with a variety of parameter sets, we obtain the average across 40 results to capture the volatility connectedness between the markets. We further use the linear and nonlinear autoregressive distributed lag models to assess the role of external uncertainties in shaping volatility connectedness. Several findings emerge: (1) Guangdong (Chongqing) is the largest net transmitter (receiver) in terms of volatility connectedness; (2) Volatility connectedness shows a declining trend, with its cycle fluctuations caused by compliance-driven trading; (3) Volatility connectedness correlates negatively with external uncertainties. Both economic policy and climate policy indices have impacts on volatility connectedness. We recommend introducing market makers to enhance market liquidity and reduce risk spreading. We also highlight the need for further research to pinpoint idiosyncratic factors that affect different markets.

Return and volatility connectedness among carbon and energy markets based on time- and frequency-domain approaches

With heightened concern over carbon neutrality and increased energy market fluctuations against the backdrop of increasing global uncertainty, it becomes imperative to thoroughly investigate the information transmission and risk contagion between carbon and energy markets. This paper empirically explores the return and volatility connectedness among carbon and energy markets (electricity, natural gas, crude oil, and coal) from April 2008 to September 2021 by employing the time-frequency domain connectedness approaches. This paper indicates: i) the return connectedness exceeds volatility connectedness, and extreme events can intensify the dynamic changes; ii) the return connectedness is predominantly concentrated at high-frequency, while the volatility connectedness is concentrated at medium- and low-frequency. Net volatility connectedness maintains a consistent direction across all markets in the time-frequency domain. In contrast, net return connectedness exhibits an opposing direction at high-frequency and medium- and low-frequency. iii) the natural gas and coal markets predominantly act as net transmitters in both return and volatility connectedness, while the electricity, crude oil, and carbon markets operate as net receivers. Moreover, during the COVID-19 pandemic, the carbon market emerged as an information receiver in time-frequency domains and acted as a risk transmitter, exporting risk, particularly to the electricity market. These conclusions help investors, high-carbon enterprises, and policymakers to comprehensively understand the carbon-energy relationships, thereby supporting sustainable energy development and low-carbon economic goals. Simultaneously, this paper provides insights for enhancing carbon markets in emerging markets like China.

Realized volatility spillovers between energy and metal markets: a time-varying connectedness approach

This paper analyzes the degree of dynamic connectedness between energy and metal commodity prices in the pre and post-COVID-19 era, using the time-varying parameter vector autoregressive connectedness approach of Antonakakis et al. (J Risk Financ Manag 13(4):84, 2020). The results suggest that market interconnectedness increased slightly following the outbreak of COVID-19, although this increase was lower and less persistent than that observed after the Global Financial Crisis of 2008. Furthermore, we find that crude oil was the main net transmitter of shocks before COVID-19 while heating oil, gold, and silver were the main net transmitters of shocks during the COVID-19 pandemic. In contrast, natural gas and palladium were the main net receivers of shocks during the entire sample period, making these two commodities attractive hedging and safe haven options for investors during the pandemic. Overall, our results suggest that hedging and diversification opportunities decrease during crises. Furthermore, they indicate that accurate forecasts of the volatility of several commodities, such as natural gas and different metals, can be obtained by exploiting the information content of crude oil. However, they also reveal that crude oil lost its leading position as a net shock transmitter during the COVID-19 pandemic.

Downside risk connectedness between Islamic sectors and green bond markets: implications for hedging and investment strategies

ABSTRACT This study explores the relationship between the green bond and Islamic sectoral markets in terms of downside risk. A new framework was developed using CAViaR and QVAR techniques to construct hedging and portfolio strategies. Results show higher levels of downside risk connectedness and spillover across different risk environments, with short-run connectedness outperforming long-run. The downside risk connectedness and spillover are time-varying, influenced by major events like the Shale Oil Revolution, US–China trade war, COVID-19 pandemic, and Russo-Ukrainian conflict. Green bond market indices of China, the European Union, the US, and the global market receive net shocks in moderate and higher downside risk environments across various frequencies. US and global green bonds exhibit net transmitter roles in a downside-risk environment. Islamic Sectors BM, OG, FIN, CG, and HC are shock transmitters, while TELE and UTL are shock receivers across different downside risk environments and frequencies. Net roles are CS, INDUS, and TECH, subject to the downside risk environment and frequencies.

Uncertainties and Dynamic Connectedness Among Sectors: A Case of the USA, India, France, Germany and Russia

This study examines the connectedness among the sectoral indices for the USA, India, France, Germany and Russia stock markets pre and post-COVID-19. We use the Diebold and Yilmaz spillover index to examine the study's objectives. This study finds that volatility spillover is higher during COVID-19 than before COVID-19. In addition, the volatility transmission across the sectors demonstrated mixed results regarding net volatility receivers and transmitters. However, the degree of transmission is higher for the net volatility receivers than for the net volatility transmitters. This study will help policymakers draft related policies to immunise their economy and market from spillover contagions of international markets during varying pandemic scenarios. This study would also help potential investors, including foreign institutional investors, diversify their portfolios based on the sectors with net volatility transmitters and receivers.

Dynamic Connectedness and Investment Strategies between Commodities and ESG Stocks: Evidence from India

The study investigates the connectedness between commodities and ESG stocks of India using the extended joint connectedness approach. The study found a time-varying relationship between commodities and ESG stocks. It also discovered that there is a low spillover between the two. However, the total connectedness increased during the Russia-Ukraine war but remained low. The study found that crude oil and natural gas act as net transmitters, while ESG stocks and gold act as net receivers. ESG stocks are negatively connected with gold and have a low degree of positive correlation with crude oil and natural gas. Therefore, portfolio diversification opportunities exist between commodities and ESG stocks. The study exhibits that investors may derive significant benefits by adjusting their portfolios based on the optimum weights provided by the portfolio construction technique. The study provides valuable insights for portfolio managers, investors, and policymakers.

A multi-dimensional connectedness and spillover between green bond and Islamic banking equity: Evidence from country level analysis

The paper delves into the multidimensional connections and spillover between green bonds and Islamic banking stocks from eleven countries. Throughout this study, we further explored optimal hedging mechanisms, as well as optimal portfolio weighting mechanisms, with Islamic banking equities and green bonds. Our empirical results show that there is a moderate level of interrelation between green bonds and Islamic banking indices, with low connectedness throughout the long-term and medium-term. The time-varying spillover effects become higher, albeit low, in the early periods of both SOR and COVID-19 at short-, medium-, and long-term scales, which suggests some diversification and hedging benefits from holding portfolios of the two assets. Country-based Islamic bank markets are not largely affected by disturbances that emerged in some other markets in the short-, medium-, or long-term timescales. The Chinese green bond market has a tendency to be the greatest net risk transceiver for both the green bond and Islamic bank markets over the medium and long term, whilst the global green bond index has been the leading net risk transmitter during the short term. Only the UAE and Saudi Islamic Banking indices act as net risk transmitters in the short and medium term. The empirical findings further suggest that global risk variables are dependable drivers of the extent of spillover between Islamic banking indices and green bonds. Our research shows that owning Islamic bank stocks during COVID-19 and SOR minimizes the significant risk linked to holding green bonds, which has profound implications for risk management and portfolio creation. Thus, our study offers important implications for economic agents.

Time‐Frequency Connectedness between Green Bonds and Conventional Financial Markets: Evidence from China

This paper examines the dynamic evolution and volatility spillovers between China’s green bond market and conventional financial markets (bond, stock, commodity, and foreign exchange markets) using time and frequency connectedness measures. The empirical findings are as follows: firstly, there is a significant volatility spillover effect between the green bond market and other traditional financial markets, with the spillover effect showing clear time‐varying characteristics. The total spillover effects among all markets increase notably during extreme market conditions. Secondly, the green bond market primarily acts as a net risk spillover transmitter in most periods. Thirdly, compared to the stock, foreign exchange, and commodity markets, the green bond market has a more significant spillover effect on the traditional fixed‐income market. Finally, the volatility spillover effect of the green bond market on other markets exhibits a time‐frequency evolution, predominantly driven by short‐term factors. However, as market maturity increases, the influencing factors of the spillover effect gradually shift from short‐term to medium and long‐term factors. These findings offer insights for portfolio and risk management.

FinTech-powered integration: Navigating the static and dynamic connectedness between GCC equity markets and renewable energy cryptocurrencies

This study examines the static and dynamic connectedness between renewable energy cryptocurrencies and the GCC stock market using the TVP-VAR and DCC-GARCH approaches. Our findings indicate a significant connectedness between the GCC stock markets and energy cryptocurrencies. Moreover, the total connectedness is higher during COVID-19 than pre-COVID-19, highlighting the heightened sensitivity to extreme events within the financial system. The energy cryptocurrencies act as net receivers of return spillovers, while GCC stock markets predominantly act as net transmitters in the overall interconnectedness framework. Our findings imply that adding energy cryptocurrencies to stock portfolios can mitigate risk and optimize portfolio performance. The findings also indicate that energy cryptocurrencies offer a potential diversification avenue and can act as a hedge during periods of higher market uncertainty. The hedging ratios are low, implying the relatively low cost of hedging risks of portfolio stocks through energy cryptocurrencies. These insights provide valuable guidance for investors and policymakers regarding portfolio management, hedging, and financial markets' stability.

Does the COVID-19 pandemic strengthen the volatility spillovers across global stock markets?

This paper investigates the volatility spillover and connectedness among the stock markets of G7, BRICS countries, and other countries where COVID-19 is more severe. For this investigation, we perform static and rolling-window analysis to measure volatility spillovers using the spillover index approach and LASSO-VAR for estimating high-dimensional VARs. We also examine the network connectedness at different periods. Our findings indicate that the recent COVID-19 pandemic intensifies volatility spillovers, supporting the financial contagion effects. Furthermore, the United States, Spain, and Russia markets are net volatility transmitters for most of the period before and during the COVID-19 pandemic.

Gold Price, Oil Price, and Stock Market Return Spillovers: Empirical Evidence from Vietnam

This paper analyzes the spillovers of oil prices, gold prices and stock market returns in Vietnam. By adopting the time-varying parameter vector autoregression model (TVP-VAR), the results show a moderate interdependence among the variables from 2010-2022. Additionally, the relationship between oil prices, gold prices, and stock market returns changes over time and is influenced by economic and political events. Overall, stock market returns are net shock transmitters with the highest volatility among all the variables, while the oil and gold markets are net recipients. Finally, our results remain robust to Vietnam's alternative stock market index.

Who are the receivers and transmitters of volatility spillovers: oil, clean energy, and green and non-green cryptocurrency markets.

In the context of clean energy and green cryptocurrency development, the relationship between energy and cryptocurrency markets deserves further exploration. This study employs a quantile time-frequency connectedness approach to measure the dynamic connectedness and volatility propagation mechanisms between oil, clean energy, green cryptocurrency (GC), and non-green cryptocurrency (NGC) markets. Our findings suggest that, at median and low volatility levels, the oil and clean energy markets act as net receivers, taking on volatility spillovers from cryptocurrency markets. However, at high volatility levels, oil and clean energy markets transform into net transmitters. Most NGCs are volatility transmitters, while most GCs are volatility receivers in the median and extremely high volatility cases. We also observe that the total connectedness index (TCI) is heterogeneous over time and dependent on economic events. At median and low volatility levels, the short-run TCI makes the primary contribution. On the other hand, for high volatility levels, where short-term TCI does not have an absolute advantage, long-term TCI plays a greater role in many periods. Additionally, there is asymmetry in the TCI (including long-term and short-term TCI) at the quantile level. In the median and extreme scenarios, the COVID-19 has caused different levels of shock on oil, clean energy, GC, and NGC markets connectedness.

Economic sanctions sentiment and global stock markets

This study explores the impact of Russia-Ukraine war and sanctions news sentiments (RUWESsent) on global equity markets using three robust estimators. The quantile-on-quantile regression (QQR) results show that RUWESsent has heterogeneous effects on stock returns. The rolling window wavelet correlation (RWWC) indicates a time-varying influence on the G10 stock market. The results of the time–frequency quantile VAR (TF-QVAR) approach show a time-varying and heterogeneous connectedness. Moreover, RUWESsent acts as the net shock transmitter across extreme quantiles. These results give investors, regulators, and policymakers valuable insights into geopolitical events.