Spillover Transmission Research Articles

Asymmetric volatility connectedness between Islamic stock and commodity markets

This paper examines the asymmetric volatility connectedness amongst the Dow Jones Islamic Market Index (DJIM) and the Brent crude oil, gold, and silver markets. We use the Diebold and Yilmaz methodology to examine asymmetric volatility connectedness associated with bad (negative semi-variance) and good (positive semi-variance) volatility in these markets. We identify significant volatility connectedness between the DJIM and commodity markets, with the DJIM and Brent oil markets being the largest net contributors of spillovers. Furthermore, the evidence on semi-volatility connectedness displays asymmetric behavior. Bad volatilities are associated with net transmission of spillovers to other markets, except for silver. Our results have significant implications for investors dealing with the DJIM and commodity markets in terms of asset management and diversification.

Time-frequency volatility spillovers between major international financial markets during the COVID-19 pandemic

We examine volatility spillovers and their time-frequency dynamics among major global financial markets from the outbreak of COVID-19 to present. Results show that total spillovers, driven by low frequency components, peaks at the end of March 2020 and then decline, which is not consistent with the upward trend of COVID-19; Stock markets of US and UK are net spillover transmitters, while other markets are net spillover receivers. The findings suggest that markets rally in the short term, but investors need to beware of bubbles and liquidity tightening expectations, and policymakers can gradually start to resume conventional monetary policy.

Inflation synchronization among the G7and China: The important role of oil inflation

We investigate the interconnectedness and spillovers between oil price inflation and CPI inflation in the G7 countries and China over the available period 1987M6-2020M6. To this end, we employ the multivariate DECO-GARCH model and both time-domain and frequency-domain spillover methods to achieve the objectives. We find that there is a reasonably high degree of integration between the oil price inflation and the CPI inflation rates in those countries. This relationship is not only time-varying, but also has been rising over time and, remarkably so, during oil crises and financial stress episodes. We also show that the oil price inflation is a crucial transmitter of spillovers to the CPI inflation of the countries under consideration, particularly to the US inflation, which, in turn, has a weak to mild influence on the paths of inflation of other countries. Additionally, the largest gross directional spillovers to other CPI inflation rates accrue to the US, while the lowest accrue to China. Finally, the oil price inflation influences the CPI inflation over the short-end of the business cycle, but much less so over the medium- to long-ends.

Nonlinear spillover and portfolio allocation characteristics of energy equity sectors: Evidence from the United States and Canada

AbstractWe investigate the nonlinear spillover and portfolio allocation characteristics of the US and Canadian energy equity portfolios. Our empirical study based on directional spillover index and non‐convex portfolio optimization show that the spillover effects in the aggregate are smaller for the US portfolio across time. However, when only the largest spillover transmitters and receivers are considered, the total spillover effects are lower for the Canadian portfolio relative to the US portfolio. These portfolio optimization results indicate lower portfolio allocation risk for the Canadian energy equities during the global financial crisis of 2008 and for the full sample period.

Spillover of zoonotic pathogens: A review of reviews.

Zoonotic spillover and subsequent disease emergence cause significant, long-lasting impacts on our social, economic, environmental and political systems. Identifying and averting spillover transmission is crucial for preventing outbreaks and mitigating infectious disease burdens. Investigating the processes that lead to spillover fundamentally involves interactions between animals, humans, pathogens and the environments they inhabit. Accordingly, it is recognized that transdisciplinary approaches provide a more holistic understanding of spillover phenomena. To characterize the discourse about spillover within and between disciplines, we conducted a review of review papers about spillover from multiple disciplines. We systematically searched and screened literature from several databases to identify a corpus of review papers from ten academic disciplines. We performed qualitative content analysis on text where authors described either a spillover pathway, or a conceptual gap in spillover theory. Cluster analysis of pathway data identified nine major spillover processes discussed in the review literature. We summarized the main features of each process, how different disciplines contributed to them, and identified specialist and generalist disciplines based on the breadth of processes they studied. Network analyses showed strong similarities between concepts reviewed by 'One Health' disciplines (e.g. Veterinary Science & Animal Health, Public Health & Medicine, Ecology & Evolution, Environmental Science), which had broad conceptual scope and were well-connected to other disciplines. By contrast, awas focused on processes that are relatively overlooked by other disciplines, especially those involving food behaviour and livestock husbandry practices. Virology and Cellular & Molecular Biology were narrower in scope, primarily focusing on concepts related to adaption and evolution of zoonotic viruses. Finally, we identified priority areas for future research into zoonotic spillover by studying the gap data.

Financial Spillover in Emerging Asia: A Tale of Three Crises

AbstractBy measuring time-varying financial spillovers of five asset classes, we analyze the propagation of shocks originating in the United States and Japan into countries of emerging Asia (EA). We compare the scale and nature of spillovers during the 2008–09 global financial crisis (GFC), the 2013 “taper tantrum” (TT), and the ongoing COVID-19 pandemic (C-19). Based on the direct and indirect spillovers, the intensity of the spillover effect was largest during C-19 due to its global and multidimensional nature, and the United States was a net transmitter of spillovers particularly in bonds and equity markets. TT was an important episode for EA as it marked the beginning of the region's financial volatility and increased spillovers especially in bonds market. The impulse responses reveal that most spillovers were transmitted rapidly, in a matter of days. In times of recession whereby financial stability is in danger of being affected by spillovers, a concrete financial cooperation remains absent in EA although formal institutions designed to deal with the contagion have been put in place.

Yanrui Wu Comments on Financial Spillover in Emerging Asia: A Tale of Three Crises

Yanrui Wu, University of Western Australia Business School: This paper examines and compares three major crises, namely, the 2008–09 global financial crisis (GFC), the 2013 “taper tantrum” (TT), and the ongoing COVID-19 pandemic (C-19) and their potential spillover effects. The topic is interesting and timely given the current outbreak of COVID-19 in the world. The paper thus potentially adds to the literature and contributes to the understanding of the economic impacts of a major crisis or pandemic in the world.The paper is essentially an empirical exercise involving standard time-series econometric methods, that is, the GARCH BEKK process and the multivariate vector autoregression (M-VAR). The authors would most probably be aware that there are competing, more advanced techniques available. It would thus be helpful if these new developments are at least acknowledged in the paper. Otherwise, the chosen research methods in the paper are appropriate and acceptable.In the paper, the authors considered five asset types in ten countries (United States, Japan, and eight emerging Asian economies). They concluded that among the three crises, the COVID-19 pandemic has generated the largest spillover effect and the United States is a net transmitter of spillovers, particularly in bonds and equity markets. The detailed results are presented in Figures 1–3 of the paper. However, interpretation of these figures is largely based on virtual observation. It would be more convincing if the authors can conduct some statistical tests of statements like being “the largest transmitter” or “the largest receiver.” The three charts are based on 1 percent level of significance. Are the conclusions the same if a 5 percent level of significance is considered for instance?The authors also showed that TT was a main trigger of financial volatility in emerging Asian economies, particularly the bond markets. Although COVID-19 and its effects are still being assessed by economists, there must already be a large body of studies on the impacts of the GFC and TT. It would be instrumental if the findings in this paper could be compared with those in the existing literature, which I feel is underdocumented in this paper.The last part of the empirical exercise is the examination of impulse response functions (IRF). The authors concluded that “IRF shows that in general, the average period of transmission of spillover was around three to five days.” This is a key finding that is highlighted in several places (the abstract, conclusion, and so on). But it is difficult for readers to digest this, as relevant evidence is not presented in the paper perhaps due to space limitations. This is unfortunate.Finally, in the paper, the authors commented on policy implications, which I like. The message to emerging Asian economies and policymakers is noticeably clear that these economies should establish a concrete system of financial cooperation or ensure that the existing system truly functions during a crisis.

A high-frequency analysis of return and volatility spillovers in the European sovereign bond market

Using high-frequency data from the MTS trading platform, we examine return and volatility spillover effects across different maturities in the European sovereign bond market over tranquil and crisis periods. The longer-term benchmark securities of core countries are the largest net volatility transmitters, whereas the shorter-term benchmarks of periphery countries are the leading net receivers of volatility shocks. Moreover, the short-end and the long-end of the yield curve in both regions emerge as the sole net recipients of return spillovers. We note that bonds of periphery countries become volatility spillover transmitters during important macroeconomic events such as credit rating downgrades and financial assistance packages to financially distressed countries.

Macroeconomic Consequences of Covid-19 in a Small Open Economy: An Empirical Analysis of Nigeria

Nigeria is a small open economy with a high level of external dependency especially on the export of crude oil for foreign earnings and government revenue and import of consumables goods including pharmaceutical products. Currently, China and USA contribute more than 35% of Nigerian total import and in addition with Euro area constitute top export destinations of Nigerian crude oil. Studies in the past have investigated the vulnerability of Nigerian economy to external shocks, however, the emerging shocks from global economy due to COVID-19 seems unprecedented. Thus, it is imperative to preemptively examine the likely spillover effects of COVID-19 pandemic to a small open economy like Nigeria based on shocks to strategic trade partners. Given this background, this study investigates the macroeconomic consequences of COVID-19 in China, the Euro area and United States of America (USA) in Nigeria using Global Vector Autoregressive (GVAR) approach. This modelling approach provides an opportunity to analyze international macroeconomic transmission of shocks and spillovers between different countries. It also provides a framework to offer adequate tools to deal with the curse of dimensionality that may arise during the analysis. Macroeconomic variables such as exchange rate, economic growth, inflation rate, trade flows and consumers’ spending were employed from Nigeria and other COVID-19 infected partner countries to build the GVAR model. Similarly, variable such as oil price and world commodity price index served as global variables. These variables were introduced quarterly to obtain stable behavioural interactions. Subsequently, simulations were performed to capture economic reality of COVID-19 and policy reactions in COVID-19 infected partner countries. The study identified output and inflation shocks in USA and China as important external shocks to the Nigerian economy however, oil price shocks constitute the biggest external threat to the economy during and post COVID-19 era. © 2021 Penerbit Universiti Kebangsaan Malaysia. All rights reserved.

Agent based interaction of commodity price and freight market

This study investigates the relationship between iron ore, coal and wheat prices, three major dry bulk cargoes, and Capesize, Panamax, and Handymax freight, which are the intensively used ships in transportation three essential cargoes. These major ship types are considered agents in the market. The main research questions are whether there are a volatility spillover and risk transmission between commodity prices and freight routes and whether there is a differentiation in relations according to the type of cargo and intensive carriage rate. Causality in variance analysis is used to test these research questions, which determines the flow of information between variables and the volatility spillover. The obtained results reveal that the interaction can differ according to both ship types and commodity types, and volatility spillovers and risk transfers are from commodity prices to freight rates.

Carbapenemase IncF-borne blaNDM-5 gene in the E. coli ST167 high-risk clone from canine clinical infection, Italy

The blaNDM-5-producing E. coli Sequence Type (ST)167 high-risk clone is emerging worldwide in human clinical cases, while its presence in companion animals is sporadic and has never been described in Italy. Using a combined Oxford Nanopore (ONT) long-reads and Illumina short-reads sequencing approach, an E. coli ST167 isolated from a hospitalized dog, was in-depth characterized by WGS and the plasmid containing blaNDM-5 was fully reconstructed. The complete sequence of the pMOL008 mosaic plasmid (F36:F31:A4:B1; pMOL008) harbouring blaNDM-5, was resolved and characterized. Moreover, a (pro)phage and IncFII, containing blaCMY-2 and ermB, and IncI2 plasmid types were also identified. pMOL008 was almost identical to blaNDM-5-containing plasmids from E. coli ST167 isolated from Italian human clinical cases and from a Swiss dog and colonized humans. blaNDM-5 was located in a class 1 integron together with aadA2, aac(3)-IIa, mph(A), sul1, tet(A) and dfrA12. The risk of spill-over and spill-back transmission of carbapenem-resistance genes, related plasmids and strains between humans and dogs, represents a Public Health threat and highlights the importance of the One Health approach for the AMR surveillance.

Mathematical modeling and nonstandard finite difference scheme analysis for the environmental and spillover transmissions of Avian Influenza A model

ABSTRACT This work models, analyzes and assesses the impacts of environmental and spillover transmissions on Avian Influenza Virus (AIV) type A infection formulated in terms of nonlinear ordinary differential system that takes into account five spreading pathways: poultry-to-poultry; environment-to-poultry; poultry-to-human (spillover event); environment-to-human and poultry-to-environment. An in-depth theoretical and numerical analysis of the model is performed as follows. The basic reproduction number is computed and shown to be a sharp threshold for the global asymptotic dynamics of the submodel without recruitment of infected poultry. These results are obtained through the construction of suitable Lyapunov functions and the application of Poincaré-Bendixson combined with Lyapunov-LaSalle techniques. When the infected poultry is brought into the population, the model exhibits only a unique endemic equilibrium whose global asymptotic stability is established using the same techniques mentioned earlier. Further, the model is shown to exhibit a transcritical bifurcation with the value one of the basic reproduction number being the bifurcation parameter threshold. We further prove that during avian influenza outbreaks, the recruitment of infected poultry increases the disease endemic level. We show that the classical Runge-Kutta numerical method fails to preserve the positivity of solutions and alternatively design a nonstandard finite difference scheme (NSFD), which preserves the essential properties of the continuous system. Numerical simulations are implemented to illustrate the theoretical results and assess the role of the environmental and spillover transmissions on the disease.

SARS-CoV-2 spillover transmission due to recombination event

In late 2019, a novel Coronavirus emerged in China. Perceiving the modulating factors of cross-species virus transmission is critical to elucidate the nature of virus emergence. Using bioinformatics tools, we analyzed the mapping of the SARS-CoV-2 genome, modeling of protein structure, and analyze the evolutionary origin of SARS-CoV-2, as well as potential recombination events. Phylogenetic tree analysis shows that SARS-CoV-2 has the closest evolutionary relationship with Bat-SL-CoV-2 (RaTG13) at the scale of the complete virus genome, and less similarity to Pangolin-CoV. However, the Receptor Binding Domain (RBD) of SARS-CoV-2 is almost identical to Pangolin-CoV at the aa level, suggesting that spillover transmission probably occurred directly from pangolins, but not bats. Further recombination analysis revealed the pathway for spillover transmission from Bat-SL-CoV-2 and Pangolin-CoV. Here, we provide evidence for recombination event between Bat-SL-CoV-2 and Pangolin-CoV that resulted in the emergence of SARS-CoV-2. Nevertheless, the role of mutations should be noted as another influencing factor in the continuing evolution and resurgence of novel SARS-CoV-2 variants.

Dynamic return and volatility connectedness between commodities and Islamic stock market indices

This study focuses on the dynamic connectedness between returns and volatilities of commodities and Islamic developed and emerging market indices using daily date from August 30, 2007 to June 30, 2020. We employed the Diebold and Yilmaz (2014) connectedness index based on the forecast error variance decomposition from vector autoregression (VAR) framework. First, we used a static analysis to calculate the total return and volatility connectedness. Second, we opted for a dynamic analysis to evaluate both the net directional and net pairwise directional connectedness for commodities and Islamic stock markets in the total period. Finally, we perform a sub-sample analysis, with networks, nodes and edges after the outbreak of COVID-19 to highlight how this earlier outbreak has changed the network structure between commodities and Islamic indices. Generally, results show that commodities indices exhibits the highest source of shocks to Islamic stock market whatever the period. Additionally, the rolling analysis of return and volatility spillover shows that the degree of connectedness varies over time, as there is a strong spillover transmission especially after the COVID-19 pandemic. Thus, Islamic stock market appears as a net recipient rather than a transmitter of spillovers.

An exploration of the protective effect of rodent species richness on the geographical expansion of Lassa fever in West Africa.

BackgroundLassa fever (LF) is one of the most devastating rodent-borne diseases in West Africa, causing thousands of deaths annually. The geographical expansion of LF is also a concern; cases were recently identified in Ghana and Benin. Previous ecological studies have suggested that high natural-host biodiversity reduces the likelihood of spillover transmission of rodent-borne diseases, by suppressing the activities of reservoir species. However, the association of biodiversity with the geographical expansion of LF has not been the subject of epidemiological studies.Methodology/Principal findingsWe conducted a spatial analysis based on sociodemographic, geographical, and ecological data, and found that higher rodent species richness was significantly associated with a lower risk of LF emergence in West Africa from 2008 to 2017 (Odds Ratio = 0.852, 95% Credible Interval = 0.745–0.971).Conclusions/SignificanceThe results reinforce the importance of the ‘One Health’ approach by demonstrating that a high level of biodiversity could benefit human health.

Spillovers and connectedness between major precious metals and major currency markets: The role of frequency factor

We examine the volatility spillovers and hedging characteristics between four major precious metals futures (gold, palladium, platinum, and silver) and seven major currencies (Australian dollar, British pound, Canadian dollar, Chinese yuan, Euro, Japanese yen, and Swiss franc) at three time horizons (short term, intermediate term, and long term). We draw our empirical results using the index methods of Diebold and Yilmaz (2012, 2014) and Baruník and Křehlík (2018). The results show that the precious metals, except for gold, have the largest spillovers on the Australian dollar and Canadian dollar and receive the largest spillovers from these currencies for all the time horizons. In addition, with the exception of gold, the smallest spillovers from the precious metals are exerted on the Japanese yen and Chinese yuan and these currencies have the smallest spillovers to the precious metals. The Japanese yen and Chinese yuan act primarily as spillover receivers, whereas the other currencies act as both spillover transmitters and receivers in different time periods. The spillovers for most of the pairs are asymmetric for all the time horizons, are more pronounced in the short term, and noticeably increase during times of financial and economic uncertainty. Finally, adding precious metal futures contracts to currency portfolios provides diversification and hedging advantages, with hedging effectiveness higher in the short term than in the intermediate and long terms.

Spillover and risk transmission in the components of the term structure of eurozone yield curve

ABSTRACT The components of term structure of interest rate are an important element of the asset pricing models. This article studies the connectedness of the component of the sovereign yield curve across eleven earliest members of the Eurozone comprising six core countries (Germany, Netherlands, Finland, Austria, Belgium, France) and five peripheral countries (Greece, Ireland, Italy, Portugal and Spain) thus enabling us to analyse the short-, medium- and long-term yield curve dynamics of these eurozone economies. We document three distinct phases of connectedness described by the early eurozone period, global financial crisis and the European sovereign debt crises, and the period afterwards. We find a higher level of connectedness between the countries before the global financial crisis, which decreased to its lowest levels during the European debt crisis and is now rising back to higher levels following the European debt crisis. We find that, in general, the core countries are net transmitter of spillover, whereas, the peripheral countries are net receivers of spillover for the three components of the yield curve.

DYNAMIC INTERCONNECTEDNESS AND RISK CONTAGION AMONG ASIAN FINANCIAL MARKETS

This study investigates dynamic interconnectedness, spillover transmissions and risk contagion through the lens of intraday and overnight returns to ascertain whether intraday and overnight trading information (returns) have idiosyncratic effects on risk behavior of financial markets. The study employs the generalized VAR-based spillover measure, graph theory and Bayesian causality network (BN) models. Our results reveal that spillover propagation from the US market is mainly through the intraday return series to Asian markets, whereas the overnight series is mainly a recipient of spillovers. Furthermore, in terms of risk contagion, the result identifies the most systemically central financial markets (SCFMs) as Singapore, Hong Kong, Korea and Taiwan. In particular, the findings demonstrate that while Singapore maintains the role as the most systemically central markets in large part, other markets occasionally took the leading role as most central markets. Overall, the findings provide important practical implications for market regulators and investors to monitor the channels of trading information and the performance of SCFMs for better risk management and strategic investment decisions.

Volatility connectedness and market dependence across major financial markets in China economy

<abstract> With the increasing openness of the China economy, the goal of this paper is to examine volatility connectedness and spillover transmissions across markets for stock, public real estate, bond, commodity futures, and foreign exchange within the China economy. Over the full study period, we find that the five China's financial markets are not strongly volatility connected. The bond market is the predominant market of spillover transmission, whereas the commodity futures market is the top net recipient of volatility connectedness shocks. The role of spillover transmission increased during the three financial crisis periods studied. Additionally, the five markets display some degree of nonlinear causal dependence. During the Chinese stock market crash, the stock and public real estate reacted with similar patterns and larger positive or negative responses to shocks, whereas bonds and commodity futures have milder shocks response. Our findings have important implications for portfolio investors in asset diversification and policymakers in their domestic macroprudential policy coordination and control. </abstract>

The Currency Composition Channel of Monetary Policy and the Role of Macroprudential Regulation

We examine how domestic and foreign monetary policy affect the supply of bank credit when bank lending is denominated in domestic and foreign currencies, and how domestic macroprudential regulation shapes the transmission of foreign monetary spillovers. We use a country-level and a bank-level dataset from several European emerging economies on the lending activities of local banks broken down by currency denomination. We merge this information with indicators of monetary and macroprudential policy actions, and with bilateral trade linkages between countries. We document three main results. First, there exists a domestic currency composition channel of monetary policy: domestic monetary changes affect the share of lending in foreign currency in the domestic banking sector. Second, monetary shocks transmit across countries through international trade networks giving rise to an international bank lending channel in its currency dimension. Third, macroprudential policies enacted in home lending banking systems partly offset the spillover effects of monetary policies initiated abroad, suggesting an active role for macroprudential regulation in shielding the home economy from foreign shocks.