Network connectedness of the term structure of yield curve and global Sukuks

This paper explores the connectedness between the returns and volatilities of the conventional and Islamic bond markets. We use the level, slope, and curvature of the US yield curve and estimate the connectedness of these factors with the Dow Jones Islamic indices (of 3 to 10 years of maturity) as well as the minimum connectedness portfolio. The static analysis shows that level and slope of the conventional yield curve are the net transmitters of shocks while the Islamic indices have been mostly at the receiving end. The dynamic connectedness analysis shows a varying degree of the connectedness over the full sample period characterized by distinctive trajectories of booms and busts. The pairwise connectedness analysis also confirms that level and slope are the net transmitters in the system with an exception in most recent times of Covid-19 pandemic. The findings have implications for the researchers, policy makers, regulators, shariah boards, investors, and fund managers.

Quantile connectedness between oil price shocks and exchange rates

Oil is an energy resource and a driver of global economic activities. The increasing need for oil amplifies its trade and places pressure on the current account balance, which causes exchange rate fluctuations. We transcend the mean-based connectedness measures to explore the oil shocks-exchange rates nexus from an asymmetric perspective. With daily data from 07-03–1996 to 22-08-2022, we analyse the quantile dynamic spillovers between oil price shocks and exchange rates of oil-exporting and oil-importing economies. We show that shock sizes shape the system returns and volatility connectedness, with lower-tailed and upper-tailed shocks having a greater influence on the system connectedness than shocks modelled at the conditional median. By demonstrating asymmetry, the findings emphasise that for a detailed comprehension of the oil shocks-exchange rates connectedness under extreme shocks, it is necessary to go beyond mean-based connectedness metrics. The implications of our findings are important for investors, policymakers, and practitioners.

For whom does it pay to be a moral capitalist? Sustainability of corporate financial performance of ESG investment.

This paper analyzes the risk-return characteristics of socially responsible investing by employing a time-varying capital gain and Sharpe ratio analysis for various investment horizons. We employ the MSCI ESG (environmental, social and governance) leaders indices in ten markets encompassing Australia, Canada, Europe, Japan, UK, USA, China, India, Russia, and South Africa. Our sample ranges from 2007-2020. We document that ESG investments have very desirable return and hedging attributes for investors in these markets, and especially so in the USA and emerging markets.

Decoupling Between the Energy and Semiconductor Sectors During the Pandemic: New Evidence from Wavelet Analysis

We study the impact of COVID-19 on the pairwise dependence between three indices, the COVID-19 Media Coverage Index, MSCI World Semiconductor Index, and the MSCI World Energy Index, as well as investigate the respective volatility spillovers. We find intervals of weak, moderate, and strong coherence between the Media Coverage Index and returns and volatility of semiconductor and energy sector companies. Low coherence intervals indicate a diversification potential of investments in these sectors and in their volatility-based products during periods of systemic crises such as the financial turmoil induced by COVID-19. Our results provide evidence that after the escalation of the pandemic in early 2020, the energy sector cedes its leading role in terms of volatility to the semiconductor industry. We report on appealing hedging attributes related to the decoupling between the trends in the global semiconductor industry and the global energy sector accelerated by the COVID-19 triggered crisis.

Analysis of the dynamic return and volatility connectedness for non-ferrous industrial metals during the COVID-19 pandemic crisis

PurposeThis paper aims to examine the dynamic return and volatility connectedness for six major industrial metals (tin, lead, nickel, zinc, copper and aluminium) and the coronavirus media coverage index (MCI).Design/methodology/approachTo that purpose, this study applies the fresh time-varying parameter vector autoregression methodology (TVP–VAR model) during the sample period between 2 January, 2020, and 16 April, 2021, that is, covering the three waves of the COVID-19 pandemic crisis.FindingsThis study's results show interesting findings. First, dynamic total return and volatility connectedness changes over time, highlighting a significant increase during the third wave of the pandemic. Second, the MCI index is a leading net transmitter in terms of return and volatility at the introduction of the SARS-CoV-2 coronavirus crisis. Third, this study clearly distinguishes two profiles among industrial metals: copper and tin/zinc as net transmitters and lead and aluminium as net receivers. Finally, the most relevant differences between them are concentrated not only at the beginning of the COVID-19 pandemic (first wave) but also during the second and third waves of the coronavirus outbreak.Originality/valueTo the best of the authors' knowledge, this is the first research that explores the dynamic return and volatility connectedness in the industrial metal market, applying the TVP–VAR methodology during the first waves of the COVID-19 pandemic crisis.

COVID-19 and the quantile connectedness between energy and metal markets.

This study analyzes the relationship between clean and dirty energy sources and energy metals during the COVID-19 pandemic. We document a sharp increase in connectedness after the COVID-19 pandemic, that is asymmetric at the lower and upper quantiles, with stronger dependence among the variables at the upper quantiles. Among the energy metals, cobalt is the least connected to the energy markets. Finally, our empirical results show a switch in the net connectedness indexes of energy metals and clean energy after January 2021. Our results have implication for investors and policy makers for energy and metal under various market conditions.

Assessing the impact of media sentiment on the returns of sukuks during the Covid-19 crisis

The wavelet approach covering simultaneously the time and frequency domains is employed to study the impact of the Covid-19 coverage in mass media on the performance of the Dow Jones Sukuk investment grade total return indices. The overall coherence level for the media-coverage – sukuk pairs is found to increase with the investment horizon. Multiple time-frequency regions with low level of coherence, observable along the Covid-19 systemic crisis, imply attractive diversification attributes of investing in Islamic fixed-income securities especially in times of financial stress and turmoil. We investigate coherence and phase difference patterns, which differ for distinct maturity buckets of the Sukuk indices, further highlighting their potentiality for the downside risk hedge, workable under economic and financial distress.

The connectedness of oil shocks, green bonds, sukuks and conventional bonds

We analyze the impact of oil price shocks on three unique fixed income asset classes representing conventional bonds, Islamic bonds (sukuks) and green bonds by employing network dynamic connectedness framework. Our sample period ranges from May 1, 2009, to March 1, 2022, covering the aftermath of global financial crisis, subsequent boom and bust of oil markets and the COVID-19 pandemic. We document a sizable connectedness of oil price shocks with fixed income asset classes. We document oil demand and risk shocks' role as main transmitters of spillover. Our findings have important implications for investors, policy makers and regulators.

Emerging market debt and the COVID‐19 pandemic: A time–frequency analysis of spreads and total returns dynamics

We apply wavelet analyses to study the impact of COVID‐19 pandemic on the performance of emerging market bonds, in both investment grade and high yield ranges of creditworthiness. Our results show varying level of coherence ranging from low, medium and high between the Coronavirus Media Coverage index and the price moves of the emerging market USD‐denominated debt. We attribute the intervals of low coherence levels to the diversification potential during a systemic pandemic such as COVID‐19 of investments in bonds issued by developing economies. We document differences in patterns exhibited by various indices describing behaviour of option‐adjusted spreads and total returns as a function of credit quality of issuers form emerging market economies. We report well‐defined zones of the regime switching between the lead and lag roles of the emerging market bonds vis‐à‐vis the media coverage.

The impact of the COVID-19 outbreak on the connectedness of the BRICS's term structure.

This study aims to examine the impact of the different waves of the COVID-19 pandemic on the connectedness of the BRICS (Brazil, Russia, India, China, and South Africa) term structure of interest rates and its components (level, slope and curvature). For that purpose, this research applies the time-varying parameter vector autoregression (TVP-VAR) approach in order to assess the direction of spillovers among countries and factors and measure their contribution to the connectedness system. Our results show that the total connectedness measure changes over time, and the level and curvature components show connectedness that persists longer than the slope component, both in the first wave of the COVID-19 pandemic. Brazil and South Africa would appear as net transmitters of shocks, whereas China and India are net receivers. Finally, the most significant differences in the net dynamic connectedness between transmitters and receivers were focused on before and during the first wave of the COVID-19 pandemic crisis. Some additional impacts were observed during the last waves of the coronavirus pandemic. To our best knowledge, this is the first study on the connectedness between the yield curves of the BRICS economies and the COVID-19 crisis uncertainty according to the coronavirus MCI, by decomposing the yield curve into its factors (level, slope, and curvature).

Return and volatility transmission between emerging markets and US debt throughout the pandemic crisis

In this study, we investigate the return and volatility spillovers between emerging markets and US government bonds during the Covid-19-triggered pandemic by accounting for the market sentiment captured by the media coverage index. To study the dynamic spillovers, we use a TVP-VAR approach. Our results show a significant increase in the dynamic connectedness between media coverage, emerging market bonds, and US bonds, as well as between the respective volatilities, especially during the early phases of the Covid-19 pandemic, with the highest values observed in March 2020. The emerging market bonds appear to be net transmitters to the system and lead the system;whereas, the US bond market is the net receiver. These results show that, during the pandemic, the US bond market is less vulnerable and more resilient to changes in market sentiment vis-à-vis the fixed-income markets of the developing countries.

The impact of the COVID-19 outbreak on the connectedness of the BRICS's term structure

This study aims to examine the impact of the different waves of the COVID-19 pandemic on the connectedness of the BRICS (Brazil, Russia, India, China, and South Africa) term structure of interest rates and its components (level, slope and curvature). For that purpose, this research applies the time-varying parameter vector autoregression (TVP-VAR) approach in order to assess the direction of spillovers among countries and factors and measure their contribution to the connectedness system. Our results show that the total connectedness measure changes over time, and the level and curvature components show connectedness that persists longer than the slope component, both in the first wave of the COVID-19 pandemic. Brazil and South Africa would appear as net transmitters of shocks, whereas China and India are net receivers. Finally, the most significant differences in the net dynamic connectedness between transmitters and receivers were focused on before and during the first wave of the COVID-19 pandemic crisis. Some additional impacts were observed during the last waves of the coronavirus pandemic. To our best knowledge, this is the first study on the connectedness between the yield curves of the BRICS economies and the COVID-19 crisis uncertainty according to the coronavirus MCI, by decomposing the yield curve into its factors (level, slope, and curvature).

Decoupling Between the Energy and Semiconductor Sectors During the Pandemic: New Evidence from Wavelet Analysis

We study the impact of COVID-19 on the pairwise dependence between three indices, the COVID-19 Media Coverage Index, MSCI World Semiconductor Index, and the MSCI World Energy Index, as well as investigate the respective volatility spillovers. We find intervals of weak, moderate, and strong coherence between the Media Coverage Index and returns and volatility of semiconductor and energy sector companies. Low coherence intervals indicate a diversification potential of investments in these sectors and in their volatility-based products during periods of systemic crises such as the financial turmoil induced by COVID-19. Our results provide evidence that after the escalation of the pandemic in early 2020, the energy sector cedes its leading role in terms of volatility to the semiconductor industry. We report on appealing hedging attributes related to the decoupling between the trends in the global semiconductor industry and the global energy sector accelerated by the COVID-19 triggered crisis.

Dynamic connectedness between non-fungible tokens, decentralized finance, and conventional financial assets in a time-frequency framework

This study examines how the COVID-19 pandemic has affected the connectedness between non-fungible tokens, decentralized finance coins, traditional financial assets, and cryptocurrencies. We employed a time-varying parameter vector autoregressive based frequency-dependent network connectedness approach to investigate return and volatility spillover effects between assets in time and frequency domains. The findings show that both the returns and volatility spillovers have been significantly affected by the COVID-19 pandemic, and long- and short-term connectedness vary over the course of the pandemic. These findings have implications for investors, portfolio managers, and policymakers regarding their investment strategies, portfolio allocation, and risk monitoring.

Do Local and World COVID-19 Media Coverage Drive Stock Markets? Time-Frequency Analysis of BRICS

The role of media coverage as a proxy for investor sentiments has led to the assessments of the impact of COVID-19 media coverage on financial markets. To determine how both local and global media coverage affect financial markets differently, we investigate this issue from the perspective of top emerging markets, BRICS (i.e., Brazil, Russia, India, China, and South Africa). With datasets covering January 2020 to March 2022, we employ the wavelet coherence technique on two major subsamples, viz. initial outbreak year sample and the “new normal” era sample. Our findings demonstrate the leading role of BRICS equities in the initial outbreak period, particularly across medium and low frequencies. In the “new normal” era, we find a significant effect of world media coverage on BRICS equities. We discuss the implications of our findings, which are of importance to investors, policymakers, and practitioners.

Connectedness between the COVID-19 related media coverage and Islamic equities: The role of economic policy uncertainty

This paper examines the static and dynamic return and volatility connectedness among Islamic equity indices and a Coronavirus coverage index over the ongoing COVID-19 pandemic crisis. We employ ten major sectoral equity indices covering main economic sectors and the Coronavirus media coverage index (MCI) and apply the time-varying parameter vector autoregressive methodology (TVP-VAR). The results show a high degree of connectedness between the return and volatility series of the different sectoral indices. Moreover, the information transmission between these indices and the media coverage index shows that Islamic equities are net receivers of shocks from the coronavirus MCI. Additionally, we investigate the causality between the different connectedness measures and the Economic Policy Uncertainty (EPU). Our results indicate that EPU has predictive power on the net connectedness between the Islamic sectoral equities and the Coronavirus MCI.

Is greenness an optimal hedge for sectoral stock indices?

The paper examines the role of green bonds in hedging the risk against industry portfolios and other major asset classes. It mainly focuses on how the greenness of the portfolio reduces the risk of green portfolios containing green bonds and 11 industrial sectors and major financial assets from October 2014 to November 2021. The results show that the risk of green portfolios is lower than that of unhedged (non-green) portfolios. Furthermore, our study provides evidence that the hedging effectiveness of green portfolios improves during the COVID–19 pandemic. Finally, the results show that investors across the risk aversion spectrum gain higher utility after considering the transaction costs while investing in green portfolios. These results are new additions to prior literature that can interest investors, fund managers, and policymakers.

The Return and Volatility Connectedness of NFT Segments and Media Coverage: Fresh Evidence Based on News About the COVID-19 Pandemic.

We study the relationship between return and volatility of non-fungible tokens (NFT) segments and media coverage during the outbreak of the COVID-19 pandemic in a connectedness framework. We document media coverage as a net transmitter of spillover for both the return and volatility of NFT segments. We find that NFTs representing the Utilities segment is a major transmitter of spillover. Our findings have important implications for portfolio managers, regulators, and policymakers.