ABSTRACT
In view of increasing importance of emerging market currencies in the global foreign exchange markets and the growing concerns regarding the vulnerability of these currencies to global crises, we assess the connectedness of 16 emerging currencies by employing asymmetric domains of time and frequency spanning March 2011 to January 2022. We first notice bidirectional interconnectedness (both positive and negative) among three clusters of sampled exchange rates. The currency contagions follow divergent directions during crisis periods. During US debt selling crisis, there is a short-run negative contagion pointing to the appreciation of currencies. Following the Chinese financial market crisis, emerging market currencies demonstrated devaluation. There is long-run positive contagion (devaluation) in response to European Debt Crisis, Russian Ruble Crisis, Brazilian economic crisis, and Argentinian monetary crisis. The sampled exchange rates demonstrate negative long-run connectedness (appreciation) after COVID-19. The major transmitters to total connectedness are South Africa, Poland, and Mexico and major receivers include Thailand, the Philippines, Malaysia, India, Indonesia, and Egypt. In the long run, China is emerging as a significant transmitter. Our study draws significant policy and practical implications for regulators, investors, and financial market participants. © 2023 Taylor & Francis Group, LLC.
ABSTRACT
Using the asymmetric Baba-Engle-Kraft-Kroner (BEKK)-GARCH model and the frequency spillover methodology by Baruník and Křehlík (2018), this paper examines spillovers and portfolio management between crude oil and US Islamic sector stocks. The results show significant time-varying spillovers between oil and Islamic sectors. The short-term spillovers are stronger than their long-term counterparts. The spillovers intensify during extreme events (global financial crisis and COVID-19 pandemic). The aggregate index, consumer services, raw materials, and manufacturing are net contributors of spillovers in the short term, whereas the remaining sectors are net recipients. In the long-term horizon, we find that consumer goods and finance become net transmitters of spillovers. The raw materials sector becomes a net recipient of spillovers in the long term. Finally, hedging effectiveness is lower in the long term than in the short term during the oil crisis in 2015-2016 and the US presidential election in 2017, US-China trade tension, and the COVID-19 pandemic.
ABSTRACT
Carbon markets are closely connected to fossil energy and clean energy markets, but few studies focus on the size and direction of time-frequency spillovers among these markets and the role of climate change attention. Using the frequency-domain spillover index method and nonparametric causality-in-quantiles test, we explore the time-frequency spillovers among carbon, fossil energy and clean energy markets, and consider the casual effects of climate change attention. We find that the spillover effects among carbon, fossil energy and clean energy markets are time-varying, with short-term spillovers stronger than long-term spillovers. Carbon market is a net receiver of spillovers from the oil market and clean energy markets in the short term, but it becomes a net transmitter of spillovers to the coal and gas markets in the long term. Our marginal spillover effects analysis suggests that the COVID-19 pandemic has increased cross-market risk contagion in the long term and that carbon market bears larger input risks. Investors' attention to climate change has significant causal effects on the spillovers, and the causal impact of climate change attention on total spillover has significantly increased during the COVID-19 pandemic. Our findings provide important guidelines for investment in environmental protection and demonstrate the importance of formulating differentiated policies for environmental protection in different time horizons.
ABSTRACT
The study examines asymmetric, time and frequency-based spillover transmission in financial and commodity markets by employing the VAR-based generalized forecast error variance decomposition framework. Daily prices of S&P-500 and the US Dollar- Euro exchange rate representing the financial markets and WTI, gold, silver, copper, corn and soybean representing the commodity markets for the period ranging from January 6, 2006 to February 25, 2021 are used. The empirical results show that aggregate spillover transmission in financial and commodity markets exhibit asymmetry as downside spillovers dominate upside spillovers. The time-varying spillover asymmetry plot shows that there is a domination of downside spillovers only during crisis events, such as the Global Financial Crisis, the European Debt Crisis and the Covid-19 pandemic. The cross-spillover measures reveal that the inclusion of distinct asset classes, such as corn and soybean with S&P-500 has the potential to reduce the risk associated with the portfolio due to lower cross-spillovers between them. The time and frequency-based spillover transmission results indicate that overall spillovers in financial and commodity markets increase during uncertain market conditions and are mostly driven by shorter horizons. The findings are helpful to various financial market participants and the regulatory authorities.