Inflation Spillovers among Advanced and Emerging Economies: Evidence from the G20 Group

The influence of recent global shocks such as the COVID-19 pandemic and the Russian–Ukrainian war on the variability of major macroeconomic trends not only shows synchronized behavior across economies but also induces similar policy responses to counter these shocks. The purpose of this article is to explore the transmission of inflation among the G20 economies and evaluate its contribution to domestic inflation. To this end, we use the Diebold and Yilmaz spillover approach. The results that emerge from unconditional analysis reveal stark dissimilarities in inflation spillover patterns between advanced and emerging economies. Advanced economies are subject to higher spillover rates and thereby more exposed to global shocks compared to their emerging counterparts. Inflation in emerging countries is mainly derived from idiosyncratic shocks, while global shocks have only a modest influence on domestic inflation. In addition, bilateral spillovers among the G20 members show that the average pairwise directional spillovers between emerging economies are lower compared to advanced economies. The results pertaining to the spillover dynamics, on the other hand, show that total inflation spillover has a clear upward trend, indicating that the overall interconnectedness between G20 countries is increasing over time. Moreover, the estimates of spillover dynamics show a growing influence of received inflation spillovers from external shocks in both advanced and emerging economies. Policymakers in advanced economies are expected to respond to global shocks to mitigate the influence of spillovers, which is essential for economies that display high spillovers and turn out to be net receivers of shocks. However, public agencies in emerging economies should concentrate more on internal shocks to control inflation while not ignoring global shocks.

Spillovers between positively and negatively affected service sectors from the COVID-19 health crisis: Implications for portfolio management

This study empirically investigates and contributes new evidence to the ongoing topic of potential volatility spillover, efficient portfolio management, and hedging strategies. We investigate the connectedness between the travel and leisure sector (which was negatively affected by the COVID-19 pandemic) and healthcare, technology, and telecommunications sectors (which were positively impacted by the pandemic). We selected these four service sectors because they have been impacted by the pandemic and are also crucial for the world's economy. We separately perform a connectedness analysis for four regions: Europe, Eastern Europe, Asia-Pacific, and North America. The main findings indicate a rise in return and volatility spillovers during the COVID-19 outbreak in the selected sectors. Healthcare, telecommunications, and technology sectors are major transmitters of volatility shocks to the travel and leisure sector during the crisis. The portfolio analysis shows that investors should include healthcare, telecommunications, and technology sectors in their equity portfolios to reduce investment risk and protect expected returns during the pandemic. Hedge ratios vary over crisis and non-crisis periods, highlighting the option of adjusting hedging strategies during turbulent and stable periods. The study also evaluates efficient portfolio management strategies shaped during the COVID-19 pandemic using the estimated results of the DCC-GARCH approach.

In search of hedges and safe havens during the COVID-19 pandemic: Gold versus Bitcoin, oil, and oil uncertainty.

This paper investigates the potential hedging and safe-haven properties of several alternative investment assets, including gold, Bitcoin, oil, and the oil price volatility index (OVX), against the risks of the Saudi stock market and its constituent sectors in different phases of the COVID-19 pandemic. Using daily data, we employ the bivariate dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH) technique to model volatilities and conditional correlations. Our findings show that all investigated alternative investment assets had a time-varying hedging role in the Saudi stock market, which became expensive during the early stages of the COVID-19 pandemic. Our results also show that the optimal weights for gold were substantially higher than those of other assets, reaching a peak during the pandemic, implying that investors consider gold a flight-to-safety asset. Additionally, we find that gold and OVX were strong hedges and could have served as weak safe havens for investors during the early stages of the COVID-19 pandemic, while the remaining assets generally lacked these properties and could be merely used as diversifiers. Our empirical findings offer several key implications for policymakers and portfolio managers in Saudi Arabia that may be applicable to similar markets. In particular, we show that OVX-based products can serve as a promising hedging asset for stock markets in oil-exporting countries.

The COVID-19 Outbreak and Risk–Return Spillovers between Main and SME Stock Markets in the MENA Region

This study investigates return and asymmetric volatility spillovers and dynamic correlations between the main and small and medium-sized enterprise (SME) stock markets in Saudi Arabia and Egypt for the periods before and during the COVID-19 pandemic. Return and volatility spillovers are modelled using a VAR-asymmetric BEKK–GARCH (1,1) model, while a VAR-asymmetric DCC–GARCH (1,1) model is employed to model the dynamic conditional correlations between these markets, which are then used to determine and explore portfolio design and hedging implications. The results show that while bidirectional return spillovers between the main and SME stock markets are limited to Saudi Arabia, shock and volatility spillovers have different characteristics and dynamics in both main–SME market pairs. In addition, the dynamic correlations between the main and SME markets are mostly positive and have notably increased during the COVID-19 pandemic, particularly in Saudi Arabia, suggesting that adding SME stocks to a main stock portfolio enhances its risk-adjusted return, especially during tranquil market phases. One practical implication of our results is that the development of SME stock markets can indirectly contribute to economic development via the main market channel and provide an avenue for portfolio diversification and risk management.