Dynamic connectedness, asymmetric risk spillovers, and hedging performance of China's green bonds

In this paper, we analyze the dynamic connectedness and asymmetric risk spillovers among China's green bonds, bonds, stock, and crude oil markets in terms of magnitude, direction, and patterns by utilizing the DCC-GARCH-t-Copula model. We then evaluate the hedging performance of China's green bonds and compare it before and after the COVID-19 pandemic. Our empirical results demonstrate that, on average, green bonds display significantly lower extreme risk and have weak connectedness with stock and crude oil markets. The spillover effect of green bonds and crude oil risk is particularly pronounced;however, there are weak green bonds-stock risk spillover effects. Subsequent to the COVID-19 outbreak, the green bonds market is more resilient to extreme bonds market declines and offer improved hedging potential for bonds.. Our findings furnish an up-to-date picture and invaluable information for the portfolio, risk management, and hedging strategies for pro-environmental investors in emerging green bonds markets.

Interlinkages of cryptocurrency and stock markets during the COVID-19 pandemic by applying a QVAR model

Purpose: This paper aims to study the interlinkages between cryptocurrency and the stock market by characterizing their connectedness and the effects of the COVID-19 crisis on their relations. Design/methodology/approach: The author employs a quantile vector autoregression (QVAR) to identify the connectedness of nine indicators from January 1, 2018, to December 31, 2021, in an effort to examine the relationships between cryptocurrency and stock markets. Findings: The results demonstrate that the pandemic shocks appear to have influences on the system-wide dynamic connectedness. Dynamic net total directional connectedness implies that Bitcoin (BTC) is a net short-duration shock transmitter during the sample. BTC is a long-duration net receiver of shocks during the 2018–2020 period and turns into a long-duration net transmitter of shocks in late 2021. Ethereum is a net shock transmitter in both durations. Binance turns into a net short-duration shock transmitter during the COVID-19 outbreak before receiving net shocks in 2021. The stock market in different areas plays various roles in the short run and long run. During the COVID-19 pandemic shock, pairwise connectedness reveals that cryptocurrencies can explain the volatility of the stock markets with the most severe impact at the beginning of 2020. Practical implications: Insightful knowledge about key antecedents of contagion among these markets also help policymakers design adequate policies to reduce these markets' vulnerabilities and minimize the spread of risk or uncertainty across these markets. Originality/value: The author is the first to investigate the interlinkages between the cryptocurrency and the stock market and assess the influences of uncertain events like the COVID-19 health crisis on the dynamic interlinkages between these two markets. © 2023, Nguyen Hong Yen and Le Thanh Ha.

Interlinkages of cryptocurrency and stock markets during COVID-19 pandemic by applying a TVP-VAR extended joint connected approach

Purpose: The purpose of this paper is to study the interlinkages between the cryptocurrency and stock market by characterizing their connectedness starting from January 1, 2018 to December 31, 2021. Design/methodology/approach: The author employs a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach. Findings: The pandemic shocks appear to have influences on the system-wide dynamic connectedness, which reaches a peak during the COVID-19 pandemic. Net total directional connectedness suggests that each cryptocurrency and stock have a heterogeneous role, conditional on their internal characteristics and external shocks. In particular, Bitcoin and Binance Coin are reported as the net receiver of shocks, while the role of Ethereum shifts from receivers to transmitters. As for the stock market, the US stock market stays persistent as net transmitters of shocks, while the Asian stock market (including Hong Kong and Shanghai) are the two consistent net receivers. During the COVID-19 pandemic shock, pairwise connectedness reveals that cryptocurrencies can explain the volatility of the stock markets with the impact most severe at the beginning of 2020. Practical implications: Insightful knowledge about key antecedents of contagion among these markets also help policymakers design adequate policies to reduce these markets' vulnerabilities and minimize the spread of risk or uncertainty across these markets. Originality/value: The author is the first to investigate the interlinkages between the cryptocurrency and the stock market and assess the influences of uncertain events like the COVID-19 health crisis on the dynamic interlinkages among these two markets. The author employs the TVP-VAR combined with an extended joint connectedness approach. [ FROM AUTHOR] Copyright of Journal of Economic Studies is the property of Emerald Publishing Limited and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full . (Copyright applies to all s.)

Cross-country categorical economic policy uncertainty spillovers: evidence from a conditional connectedness TVP-VAR framework

Purpose: This study aims to investigate the dynamic interconnectedness of economic policy uncertainty (EPU), fiscal policy uncertainty (FPU) and monetary policy uncertainty (MPU) in four nations, the USA, Japan, Greece and South Korea, between 1998 and 2021. Design/methodology/approach: To comprehend the cross-category/cross-country evolution of uncertainty connectedness, the authors use the conditional connectedness approach. By using an inclusive network, this strategy lessens the bias caused by omitted variables. The TVP-VAR method is advantageous as it eliminates outliers that may potentially skew the results and reduces the bias caused by picking arbitrary rolling windows. Findings: Based on the findings, aggregate EPU is a net transmitter of policy uncertainties across all countries when conditional-country connectedness is used. MPU receives significantly more spillovers than FPU does across all countries, even though both are primarily recipients of uncertainties. The USA appears to be a transmitter of categorical spillovers before COVID-19, while Greece appears to be a net receiver of all category spillovers in terms of category-specific connectedness. The existence of extreme global events is also seen to cause an increase in category-specific and country-specific connectedness. Additionally, the authors report that conditional country-specific connectedness is greater than conditional category-specific connectedness. Originality/value: This study expands existing literature in several ways. Firstly, the authors use a novel conditional connectedness approach, which has not been used to untangle cross-category/cross-country policy uncertainty connectedness. Secondly, they use the TVP-VAR approach which does not depend on rolling windows to understand dynamic connectedness. Thirdly, they use an expanded number of countries in their analysis, a departure from existing studies that have in most cases used two countries to understand categorical EPU connectedness. © 2023, Kingstone Nyakurukwa and Yudhvir Seetharam.

Dynamic connectedness in commodity futures markets during Covid-19 in India: New evidence from a TVP-VAR extended joint connectedness approach

This paper presents a unique time-varying parameter vector autoregression (TVP-VAR) based extended joint connectedness approach to quantify the connectedness and transmission mechanism of shocks of nine commodities futures returns (namely;Gold and Silver from the category of precious metals;Copper, Lead, Zinc, Nickel and Aluminium from the category of base or industry metals;Natural Gas and Brent Crude Oil from energy sector) obtained from Multi Commodity Exchange of India Limited (MCX) from January 1, 2018 to December 31, 2021. This paper employs Balcilar et al. (2021)'s TVP-VAR extended joint connectedness approach, which combines the TVP-VAR connectedness approach of Antonakakis et al. (2020) with the joint spillover approach of Lastrapes and Wiesen (2021), to investigate the dynamic connectedness among the select commodity futures of interest. Our findings show that system-wide dynamic connectedness varies over time and is driven by economic events. The pandemic shocks appear to have an impact on system-wide dynamic connectedness, which peaks during the COVID-19 pandemic. Crude oil and zinc are the primary net shock transmitters, whereas gold and silver are the primary net shock receivers. We also discovered that the role of aluminum in shock transmitters and shock receivers changed during the course of the investigation. Pairwise connectivity, on the other hand, shows that Zinc, Copper, Nickel, and Crude oil are the key drivers of gold price changes, explaining the network's high degree of interconnectivity. During the study period, it was also discovered that silver has a significant influence on gold. Furthermore, in comparison to natural gas, gold's spillover activity is still relatively modest (on a scale), indicating that gold is less sensitive to market innovations. © 2023 Elsevier Ltd

Oil price shocks and exchange rate dynamics: Evidence from decomposed and partial connectedness measures for oil importing and exporting economies

This paper introduces a novel framework of partial connectedness measures to investigate contagion dynamics between different types of oil price shocks and exchange rates. Oil price shocks are persistent net transmitters of shocks within the network. It is found that the oil shock net spillovers made up most of the net connectedness values in most countries during the pre-COVID-19 period. Both oil exporters and oil importers, without any exception, were all net receivers of shocks. However, during the COVID-19 era, there were significant differences within the groups of countries. It is also observed that the oil-risk shock transmits to the other two types of oil shocks in the pre-COVID-19 and during the COVID-19 periods. The results may have potential implications for traders. © 2023 Elsevier B.V.

Dynamic connectedness between COVID-19 news sentiment, capital and commodity markets

This study investigates the dynamic transmission mechanism between COVID-19 news sentiment (Google Trends Index), and S&P100, crude oil and gold volatility indices using the recently developed time-varying parameter vector autoregressive (TVP-VAR)-based extended joint connectedness approach. This framework corrects for the Generalized Forecast Error Variance Decomposition (GFEVD) normalization problem. The obtained empirical results suggest that dynamic total connectedness is heterogeneous over time and severely affected by COVID-19. More importantly, we identify COVID-19 news sentiment to be the main driver of spillover shocks indicating that it is indeed an important predictor of the volatility indices employed in our study. Thus, our findings have important implications for policymakers, private investors, as well as for portfolios and risk managers.

Patterns of unconventional monetary policy spillovers during a systemic crisis

We examine whether the COVID-19 pandemic-induced systemic shocks cause a change in the dynamics of monetary policy spillovers among developed economies. Results from our analysis under the time-varying parameter vector autoregressive model indicate that: (i) variations in monetary policy actions are explained by monetary policy spillovers;(ii) shocks from the COVID-19 pandemic rocketed monetary policy spillovers;(iii) the Euro area and the US chiefly propagate monetary policy shocks to their counterpart developed economies;and (iv) New Zealand and Japan endure the highest monetary policy shocks. Our results evidence the need for synchronized monetary policy actions during systemic crises. © 2023 Informa UK Limited, trading as Taylor & Francis Group.

An Application of a TVP-VAR Extended Joint Connected Approach to Investigate Dynamic Spillover Interrelations of Cryptocurrency and Stock Market in Vietnam

In this paper, we employ a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach to study interlinkages between the cryptocurrency and Vietnam's stock market by characterizing their connectedness starting from January 1, 2018, to December 31, 2021. We report that the COVID-19 health shocks impact the system-wide dynamic connectedness, which reaches a peak during the COVID-19 pandemic. Net total directional connectedness suggests that the cryptocurrency market significantly impacts Vietnam's stock market, especially those with the largest market capitalization like Bitcoin and Ethereum. This market can be held accountable for Vietnam's stock market volatility. In encountering the COVID-19 pandemic, the effect of the three cryptocurrencies reduced before 2020, around the end of 2019 and the beginning of 2020. However, from the end of 2020-2021, while cryptocurrencies continued their roles as net transmitters for Vietnam's stock market. © 2023 World Scientific Publishing Company.

Connectedness among various financial markets classes under Covid-19 pandemic and 2022 Russo-Ukrainian war: evidence from TVP-VAR approach

PurposeThis paper examines the time-varying return connectedness between renewable energy, oil, precious metals, the Gulf Council Cooperation region and the United States stock markets during two successive crises: the pandemic Covid-19 and the 2022 Russo-Ukrainian war. The main objective is to investigate the effect of the Covid-19 pandemic and the Russo-Ukrainian war on the connectedness between the considered stock markets. Design/methodology/approachThis paper uses the time-varying parameter vector autoregression approach, which represents an extension of the Spillover approach (Diebold and Yilmaz, 2009, 2012, 2014), to examine the time-varying connectedness among stock markets. FindingsThis paper reflects the effect of the two crises on the stock markets in terms of shock transmission degree. We find that the United States and renewable energy stock markets are the main net emitters of shocks during the global period and not just during the two considered crises sub-periods. Oil stock market is both an emitter and a receiver of shocks against Gulf Council Cooperation region and United States markets during the full sample period, which may be due to price fluctuation especially during the two crises sub-periods, which suggests that the future is for renewable energy. Originality/valueThis paper examines the effect of the two recent and successive crises, the Covid-19 pandemic and the 2022 Russo-Ukrainian war, on the connectedness among traditional stock markets (the United States and Gulf Council Cooperation region) and commodities stock markets (renewable energy, oil and precious metals).

Dynamic connectedness among the implied volatilities of oil prices and financial assets: New evidence of the COVID-19 pandemic

This paper examines the dynamic connectedness among the implied volatilities of oil prices (OVX) and fourteen other assets, which can be grouped into five different assets classes (i.e., energy commodities, stock markets, precious metals, exchange rates and bond markets). To do so we estimate a recently developed time-varying parameter vector autoregressive (TVP-VAR) connectedness approach using daily data spanning from March 16th, 2011 to March 3rd, 2021 — covering the first year of the COVID-19 pandemic. The empirical results suggest that connectedness across the different asset classes and oil price implied volatilities are varying over time and fluctuate at very high levels. The dynamic total connectedness ranges between 65% and 85% indicating a high degree of cross-market risk linkages. Furthermore, we find that the oil market is becoming more integrated with the financial markets, since it tends to be materially impacted by abrupt fluctuations of the global financial markets' volatilities. More specifically, the analysis shows that, throughout the period, OVX is a net receiver of shocks to the remaining implied volatilities. Finally, the net pairwise connectedness measures suggest that OVX is constantly at the net receiving end vis-a-vis the majority of the asset classes' implied volatilities. Those findings are of major importance for portfolio and risk management in terms of asset allocation and diversification. © 2022 The Author(s)

The impact of COVID-19 on GCC equity and debt markets: Evidence from TVP-VAR estimation

COVID-19 has rapidly evolved into a global pandemic and has strongly impacted financial markets of the world, including the Gulf Cooperation Council (GCC) region. Since the outbreak is unprecedented, there is a need to analyze the effects of the disease on volatility spillovers between equity and bond markets. We empirically investigated the impact of the COVID-19 pandemic on the financial equity and debt markets in the GCC region. We used the TVP-VAR dynamic connectedness approach to measure risk transmission in the GCC market. This study investigated the time-varying behavior of GCC equity and conventional and Islamic debt markets using data from 1 January 2019 to 30 August 2021. The results were also validated by performing a DCC-GARCH analysis to check the shock and spillovers among the GCC markets. We found the persistent shock transmitter roles of equity markets to bond and Sukuk markets in the GCC region, and the total dynamic connectedness increased during the first wave of the COVID-19 pandemic. Overall, the significant level of interconnectedness exists within the GCC markets.

The Interconnectedness between COVID-19 Uncertainty and Stock Market Returns in Selected ASEAN Countries

This paper examines the interconnectedness between the COVID-19 uncertainty index and stock returns in selected ASEAN countries. Results from the study, which uses the dynamic connectedness approach, show that on average, 47.06% of a shock on one index spills over to all other indices. This indicates that stock market returns are highly interconnected to the COVID-19 uncertainty index in ASEAN countries. However, the COVID-19 uncertainty index is not a predictor of stock returns in the ASEAN countries chosen for the study.

Cryptocurrency Interdependencies and COVID-19: The Diebold-Yilmaz and the Frequency Connectedness Approaches

It is well-known that financial connectedness tends to surge during financial/geopolitical turmoils. To this end, this study examines the impact of the COVID-19 pandemic on cryptocurrency connectedness by employing the Diebold-Yilmaz and the frequency connectedness approaches. Total spillover indexes estimated by both methodologies create proper signs to the 2017/2018 cryptocurrency bubble and gradually escalate around March 2020, which coincides with the WHO's official announcement of the COVID-19. The study contributes to the literature by gauging the COVID-19 connectedness among eight major cryptocurrencies on different frequency bands and 200-day moving windows by employing two novel methodologies.

The Dynamic Connectedness between Risk and Return in the Fintech Market of India: Evidence Using the GARCH-M Approach

Fintech allows investors to explore previously unavailable investment opportunities;it provides new return opportunities while also introducing new risks. The aim of this study is to investigate the relationship between risk and return in the fintech industry in the Indian stock market. This article is based on market-based research that focuses on demonstrating the volatility in the fintech market's prices and demystifying the opportunities. Secondary data were collected from the Bombay Stock Exchange's official fintech industry website from January 2017 to July 2022 to determine whether there is any dynamic link between risk and return in the Indian fintech market. The variance-based Mean-GARCH (GARCH-M) model was used to determine whether there is a dynamic link between risk and return in the Indian fintech market. The findings emphasize the importance of taking the risk of investing in India's fintech industry. The implications for stock investors' and fund managers' portfolio composition and holding periods of equities or market exposure are significant. Finally, depending on their investment horizons, the Indian fintech industry may yield significant profits for risk-taking individuals.

Do biofuel production and financial speculation in agricultural commodities influence African food prices? New evidence from a TVP-VAR extended joint connectedness approach

Many African countries experienced social disorder and subsequent political instability as a result of global commodity price inflation in 2007–2008, which reaffirmed the importance of overseas factors such as biofuel production, international food and energy prices, and financial speculation. Biofuel, in particular, is often placed at the center of the debate around identifying potential determinants of food price hikes. We apply a time-varying parameter vector autoregressive (TVP-VAR) extended joint connectedness approach to uncover the dynamic connectivity of African food prices, US biofuel production, global energy and food prices, and financial speculation. The key findings are;1) the results of averaged connectedness suggest that US biofuel production and financial speculation in agricultural commodities significantly influence African food prices;2) the hefty surges in the dynamic connectedness between African food prices and four cross-border factors are triggered by global events like the 2000 dot-com bubble, the 2008 global commodity boom, and the 2020 COVID-19 pandemic;3) arbitrage transactions transmitted intense shocks to African food prices between 2001 and 2012, while biofuel production constantly affected African food prices between 2001 and 2021. We draw pragmatic policy implications to prevent or mitigate market shock transmissions to African food markets.

Storm after the Gloomy days: Influences of COVID-19 pandemic on volatility of the energy market.

Volatility is a common phenomenon in the energy market, but COVID-19 has cast a dark shadow over this characteristic. In light of this observation, individuals might have an incorrect impression of the impact of this shock on the energy markets. By applying a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach to identify the sources of the energy market's volatility, we characterize the influences of COVID-19 health crisis and the volatility of the crude oil and precious metals (including gold and silver) market on the volatility of the energy market starting from January 1, 2020, to December 31, 2021. The total connectedness index, the net total, and pairwise directional connectedness measures obtained from the extended TVP-VAR allow us to monitor interlinkages from various variables in a designed network. The novel method has the benefit of distinguishing between a net recipient and a net transmitter. Our results demonstrate that the COVID-19 pandemic shocks first absorb the volatility from the energy and precious market to cause lagged but more severe consequences returning to these markets. Furthermore, there is a time-variant of system-wide interlinkages. Net total directional connectedness suggests that the oil and gold markets consistently appear to be a net transmitter of spillover shocks in the energy market. The COVID-19 pandemic shock first plays the role of shock receiver from other markets. However, this uncertainty shock acts as a shock transmitter, and its effects seem to be delayed but persistent for an extended period, thus making the energy and precious metal markets more volatile.

Dynamic connectedness among the implied volatilities of oil prices and financial assets: New evidence of the COVID-19 pandemic

This paper examines the dynamic connectedness among the implied volatilities of oil prices (OVX) and fourteen other assets, which can be grouped into five different assets classes (i.e., energy commodities, stock markets, precious metals, exchange rates and bond markets). To do so we estimate a recently developed time-varying parameter vector autoregressive (TVP-VAR) connectedness approach using daily data spanning from March 16th, 2011 to March 3rd, 2021 – covering the first year of the COVID-19 pandemic. The empirical results suggest that connectedness across the different asset classes and oil price implied volatilities are varying over time and fluctuate at very high levels. The dynamic total connectedness ranges between 65% and 85% indicating a high degree of cross-market risk linkages. Furthermore, we find that the oil market is becoming more integrated with the financial markets, since it tends to be materially impacted by abrupt fluctuations of the global financial markets’ volatilities. More specifically, the analysis shows that, throughout the period, OVX is a net receiver of shocks to the remaining implied volatilities. Finally, the net pairwise connectedness measures suggest that OVX is constantly at the net receiving end vis-a-vis the majority of the asset classes’ implied volatilities. Those findings are of major importance for portfolio and risk management in terms of asset allocation and diversification.

An application of a TVP-VAR extended joint connected approach to explore connectedness between WTI crude oil, gold, stock and cryptocurrencies during the COVID-19 health crisis.

We employ a time-varying parameter vector autoregression (TVP-VAR) in combination with an extended joint connectedness approach to study interlinkages between four markets, namely the crude oil, gold, stock, and cryptocurrency markets, by characterizing the connectedness of these four markets, from January 1, 2018, to August 1, 2021. Our results demonstrate that health shocks appear to influence the system-wide dynamic connectedness, which reaches a peak during the COVID-19 pandemic. Net total directional connectedness suggests that the gold and stock markets consistently appear to be net receivers of spillover shocks. Crude oil appears to be a critical net transmitter of shocks for almost the whole pre-COVID-19 pandemic period, but it turns into an important net receiver during the COVID-19 pandemic. The cryptocurrency market acts as the time-varying net receiver and net transmitter of our network, and it has the most inconsiderable role within our studied network. Pairwise connectedness reveals that crude oil and stock are mostly receiving spillover effects from all the other markets, while gold could be either a net transmitter or a net receiver, depending on the types of market considered. Cryptocurrency is a volatile market, and its role varies constantly over time.

When bitcoin lost its position: Cryptocurrency uncertainty and the dynamic spillover among cryptocurrencies before and during the COVID-19 pandemic.

This paper examines the dynamic spillovers among the major cryptocurrencies under different market conditions and accounts for the ongoing COVID-19 health crisis. We also investigate whether cryptocurrency policy (CCPO) uncertainty and cryptocurrency price (CCPR) uncertainty affect the dynamic connectedness. We adopt the Quantile-VAR approach to capture the left and right tails of the distributions corresponding to return spillovers under different market conditions. Generally, cryptocurrencies show heterogeneous responses to the occurrence of the COVID-19 pandemic. We find that the total spillover index (TCI) varies across quantiles and rises widely during extreme market conditions, with a noticeable impact of the COVID-19 pandemic. Bitcoin lost its position as a dominant "hedger" during the health crisis, while Litecoin became the most dominant "hedger" and/or "safe-haven" asset before and during the pandemic period. Moreover, our analysis shows a significant impact of market uncertainties on total and net connectedness among the five cryptocurrencies. We argue that the COVID-19 pandemic crisis plays a vital role on the relationship between CCPO as well as CCPR and the dynamic connectedness across all market conditions.