On the volatility of WTI crude oil prices: A time-varying approach with stochastic volatility

This study investigates the impacts of crude oil-market-specific fundamental factors and financial indicators on the realized volatility of West Texas Intermediate (WTI) crude oil price. A time-varying parameter vector autoregression model with stochastic volatility (TVP-VAR-SV) is applied to weekly data series spanning January 2008 to October 2021. It is found that the WTI oil price volatility responds positively to a shock in oil production, oil inventories, the US dollar index, and VIX but negatively to a shock in the US economic activity. The response to the EPU index was initially positive and then turned slightly negative before fading away. The VIX index has the most significant effect. Furthermore, the time-varying nature of the response of the WTI realized oil price volatility is evident. Extreme effects materialize during economic recessions and crises, especially during the COVID-19 pandemic. The findings can improve our understanding of the time-varying nature and determinants of WTI oil price volatility. © 2022

Quantile time-frequency connectedness between cryptocurrency volatility and renewable energy volatility during the COVID-19 pandemic and Ukraine-Russia conflicts

Our article employs a quantile vector autoregression (QVAR) to identify the connectedness of seven variables from April 1, 2019, to June 13, 2022, in order to examine the relationships between crypto volatility and energy volatility. Our findings reveal that the dynamic connectedness is approximately 25% in the short term and approximately 9% in the long term. The 50% quantile equates to the overall average connectedness of the entire period, according to dynamic net total directional connectedness over a quantile, which also indicates that connectedness is very intense for both highly positive changes (above the 80% quantile) and crypto and energy volatility (below the 20% quantile). With the exception of the early 2022 period when the Crypto Volatility Index transmits a net of shocks because of the Ukraine-Russia Conflict, dynamic net total directional connectedness implies that in the short term, the Crypto Volatility Index acts as a net shock receiver across time. While this indicator is a net shock receiver for long-term dynamics, wind energy is a net shock transmitter during the short term. Green bonds are a short-term net shock receiver. This role is valid in the long term. Clean energy and solar energy are the long-term net transmitters of shocks;nevertheless, the series is always and only momentarily a net receiver of shocks because of the short-term dynamics. Natural gas and crude oil play roles in both two quantiles. Dynamic net pairwise directional connectedness over a quantile suggests that uncertain events like the COVID-19 epidemic or Ukraine-Russia Conflict influence cryptocurrency volatility and renewable energy volatility. © 2022 Elsevier Ltd

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)

Does economic policy uncertainty drive the dynamic spillover among traditional currencies and cryptocurrencies? The role of the COVID-19 pandemic

The paper examines the dynamic spillover among traditional currencies and cryptocurrencies before and during the COVID-19 pandemic and investigates whether economic policy uncertainty (EPU) impacts this spillover. Based on the TVP-VAR approach, we find evidence of spillover effects among currencies, which increased widely during the pandemic. In addition, results suggest that almost all cryptocurrencies remain as "safe-haven” tools against market uncertainty during the COVID-19 period. Moreover, comparative analysis shows that the total connectedness for cryptocurrencies is lower than for traditional currencies during the crisis. Further analysis using quantile regression suggests that EPU exerts an impact on the total and the net spillovers with different degrees across currencies and this impact is affected by the health crisis. Our findings have important policy implications for policymakers, investors, and international traders. © 2022 Elsevier B.V.

Connectedness among El Niño-Southern Oscillation, carbon emission allowance, crude oil and renewable energy stock markets: Time- and frequency-domain evidence based on TVP-VAR model

Understanding the interactions among climate change, carbon emission allowance trading, crude oil and renewable energy stock markets, especially the role of climate change in this system is of great significance for policy makers, energy producers/consumers and relevant investors. The present paper aims to quantify the time-varying connectedness effects among the four factors by using the TVP-VAR based extensions of both time- and frequency-domain connectedness index measurements proposed by Antonakakis et al. (2020) and Ellington and Barunik (2021) [8,48]. The empirical results suggest that, firstly, the average total connectedness among climate change, carbon emission allowance trading, crude oil and renewable energy stock markets is not so strong for the heterogenous fundamentals underlying them. Nevertheless, the time-varying total connectedness fluctuates fiercely through May 2005 to September 2021, varying from about 8% to 30% and rocket to very high levels during the global subprime mortgage crisis and the COVID-19 pandemic. Furthermore, the total connectedness mainly centers on the short-term frequency, i.e., 1–3 months. Secondly, climate change is generally the leading information contributor among the four factors, although not particularly strong, and its leading role also performs mainly on the short-term frequency (1–3 months). Thirdly, renewable energy stock market and crude oil market show tight interactions between them and they are the two major bridges of information exchanges across various time frequencies (horizons) in this system. Finally, we confirm the evidence that the primary net connectedness contributor and receiver switch frequently across different time frequencies, implying that it is extremely essential for policy makers, energy producers/consumers and investors to make time-horizon-specific regulatory, production/purchasing or investment decisions when facing the uncertain effects of climate change on the interactions among carbon emission allowance, crude oil and renewable energy stock markets. © 2022 Elsevier Ltd

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).

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. © 2022 Elsevier B.V.

Are life insurance futures a safe haven during COVID-19?

This study aims to examine whether life insurance futures can serve as a hedge against the COVID-19 pandemic and whether they have the characteristics of a safe haven under the impact of the health shocks of the COVID-19 pandemic. We chose three life insurance stock futures in India and one in Taiwan as samples, including the market index of the two countries and the number of confirmed COVID-19 cases as sample variables. We used the growth rate of COVID-19 cases as the threshold variable, estimated the asymmetric threshold vector autoregression model, and found that insurance futures in the regime with a significant growth rate of confirmed COVID-19 cases can hedge against COVID-19 risks; therefore, insurance futures are a safe haven for the market. We further estimated the time-varying parameter vector autoregression model, and the impulse response results showed that insurance futures are a safe haven for COVID-19 pandemic risks.

Examining the Time Varying Spillover Dynamics of Indian Financial Indictors from Global and Local Economic Uncertainty.

The research aims to excavate the role of global (Fed Rate, Crude, Real Dollar Index) and endogenous economic variables (GDP and Consumer Price Index) in shaping the spillover amongst the major Indian Financial indicators, viz. Nifty Index, MCX Gold, USDINR, Govt. Bond 10Y maturity and agricultural index N-Krishi. To facilitate cross-comparison decomposition of time-varying spillover output generated from Time-Varying Vector Autoregression (TVP-VAR) with aggregation at three layers is performed. The research finds that Indian Financial Indicators are vulnerable to spillover shocks from global variables predominantly driven by Fed Rate and Real Dollar Index. USDINR turns out to be most sensitive to global shocks and transgresses the shock to other financial indicators. Importantly, persistently high inflation has brought volatility spikes in the directional spillover to financial indicators. Though spillover subsidence is observed post-2014, with an all-time high during GFC, a sudden spurt in all financial indicators has been observed post-Covid-19, with Govt. bonds showing a sporadic rise. An important observation relates to staunch spillover from GDP during GFC with reoccurrence post-Covid. Additionally, a closely knit spillover tie is observed among USDINR, N-Krishi, and Crude. The study is beneficial to RBI to proactively monitor the weakening rupee along with Fed tapering to manage the rising spillover post-Covid-19. The effort of RBI has to be reciprocated by the government in inflation targeting to reinforce the curbing efforts of rising shock spillover.