Shift contagion and minimum causal intensity portfolio during the COVID-19 and the ongoing Russia-Ukraine conflict.

Using the TYDL causality test, this paper attempts (i) to investigate the existence of shift contagion among a large spectrum of financial markets during recent stress and stress-free periods and (ii) to propose a new approach of portfolio management based on the minimization of the causal intensity. During the COVID-19 crisis period, the shift contagion analysis not only reveal a tripling of the causal links between the markets studied, but also a change in the causal structure. Beyond the initial impact of the COVID-19 crisis on financial markets, policy interventions seem to have helped in reassuring market participants that the further spread of financial stress would be mitigated. However, the Russian-Ukrainian conflict, and the high degree of uncertainty it entailed, has again exacerbated the interdependencies between financial markets. In terms of portfolio analysis, our minimum-causal-intensity approach records a lower (respectively higher) reward-to-volatility ratio than the Markowitz (1952 & 1959) minimum-variance traditional approach during the pre-COVID-19 (respectively pre-war) period. On the other hand, both approaches, the one we propose in this paper and the minimum-variance approach, record negative reward-to-volatility ratios during crisis periods.

Time-frequency analysis of the comovement between wheat and equity markets

Purpose>This study aims to investigate the time-frequency comovement between wheat futures traded on three US markets (Chicago Board of Trade (CBOT), Kansas City Board of Trade (KCBOT) and Minneapolis Grain Exchange (MGE)) at different maturities and a global equity index.Design/methodology/approach>As they allow to trace transitional shifts over time and across different frequency bands, this paper relies on continuous wavelet tools to investigate the time-frequency comovement among wheat and global stock markets.Findings>The results show an increase in wheat futures prices at all maturities and a weak integration level within each wheat market during the subprime crisis. Moreover, the wavelet power spectra maps show high wheat and equity price volatility at different time scales and for various subperiods. Furthermore, the continuous wavelet coherence highlights time-frequency-varying comovements between the markets considered, which become particularly high during times of crisis.Practical implications>The results provide market participants with a better understanding of the nature as well as the magnitude of the relationship between the global financial market and different wheat markets at different maturities and during tranquil and crisis periods. Indeed, from investors' perspective it is important to understand how markets are segmented or integrated during tranquil and crisis periods in order to better assess risks, diversify portfolios and implement more effective hedging strategies. As for regulators, a better understanding of the level of integration of different markets would further help refine macroprudential policies, and thus strengthen financial stability and resilience.Originality/value>This paper enriches the existing literature by investigating the time-frequency comovement between wheat and a global equity market. Indeed, the dynamics between stock and wheat markets across different nearest to maturities have not been widely explored by previous studies.