volatility spillover
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2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Berna Aydoğan ◽  
Gülin Vardar ◽  
Caner Taçoğlu

PurposeThe existence of long memory and persistent volatility characteristics of cryptocurrencies justifies the investigation of return and volatility/shock spillovers between traditional financial market asset classes and cryptocurrencies. The purpose of this paper is to investigate the dynamic relationship between the cryptocurrencies, namely Bitcoin and Ethereum, and stock market indices of G7 and E7 countries to analyze the return and volatility spillover patterns among these markets by means of multivariate (MGARCH) approach.Design/methodology/approachApplying the newly developed VAR-GARCH-in mean framework with the BEKK representation, the empirical results reveal that there exists an evidence of mean and volatility spillover effects among Bitcoin and Ethereum as the proxies for the cryptocurrencies, and stock markets reviewed.FindingsInterestingly, the direction of the return and volatility spillover effects is unidirectional in most E7 countries, but bidirectional relationship was found in most G7 countries. This can be explained as the presence of a strong return and volatility interaction among G7 stock markets and crypto market.Originality/valueOverall, the results of this study are of particular interest for portfolio management since it provides insights for financial market participants to make better portfolio allocation decisions. It is also increasingly important to understand the volatility transmission mechanism across these markets to provide policymakers and regulatory bodies with guidance to eliminate the negative impact of cryptocurrency's volatility on the stability of financial markets.

2022 ◽  
pp. 097215092110606
Zahra Honarmandi ◽  
Samira Zarei

This study concentrates on examining the volatility spillover effects between the exchange rate (IRR to USD) and the leading export-oriented industries (i.e., petrochemical, basic metals and minerals) in Tehran Stock Exchange before and after the COVID-19 pandemic. Using DCC- and asymmetric DCC-GARCH approaches, the data sample (from 15 December 2018 to 24 April 2021) has been partitioned into two sub-samples: before and after the official announcement of COVID-19 outbreak. The results demonstrate that from the pre- to post-COVID-19 periods, first, the average returns of all industries have sharply fallen; second, the volatility of all variables has been significantly augmented in different horizons; third, for all industries, not only has the fractal market hypothesis approved in both separated periods, but also analysing the values of the fractional difference parameter, together with the outcomes of GARCH models, supports in the higher-risk post-COVID-19 period, wherein the effects of exogenous shocks last longer than their impacts in the alternative lower-risk period. Furthermore, our investigations demonstrate that the asymmetric spillover (based on the ADCC-GARCH models) in both pre- and post-COVID-19 periods are confirmed in all three industries, except for minerals after the novel coronavirus.Ultimately, the results not only corroborate the increase in the volatility spillover effects right after the COVID-19 but also substantiate that the exchange rate contributes most of the spillover effects into the petrochemical and minerals industries, which have been almost twice as much as those of the basic metals.

2022 ◽  
Vol 2022 ◽  
pp. 1-13
Shaohui Zou ◽  
Tian Zhang

With the continuous expansion scale of carbon market and the development of carbon trading mechanism, carbon emission right, as a new financial asset, is being brought into the category of asset allocation by more and more investors. As the burning of coal is the major source of carbon dioxide, China is facing serious ecological and environmental problems, which restrict the development of low-carbon economy. In order to reach the carbon dioxide emission reduction targets and promote the development of green investment market, the carbon market should be a good emission reduction measure. The correlation and dynamic volatility spillover among coal, carbon, and green investing markets are becoming a hot topic for current research. The paper applies both VAR-GARCH-DCC and VAR-GARCH-BEKK models to draw some significant conclusions. (1) The green investment market, coal market, and Shenzhen carbon market show obvious time-varying correlation, and the volatility of the green investment market is higher. (2) There is a bidirectional Granger causality between green investing and coal markets. (3) The investment portfolio and hedging mechanism of the market are established to reduce the risk and help investors obtain higher returns.

2022 ◽  
pp. 102657
Aristeidis Samitas ◽  
Spyros Papathanasiou ◽  
Drosos Koutsokostas ◽  
Elias Kampouris

2021 ◽  
Vol 14 (11) ◽  
pp. 531
Sangram Keshari Jena ◽  
Aviral Kumar Tiwari ◽  
Ashutosh Dash ◽  
Emmanuel Joel Aikins Abakah

The connectedness dynamics between large-, mid-, and small-cap stocks is investigated using the forecasted error variance decomposition (FEVD) spillover framework of Diebold and Yilmaz in the time-frequency domain. Total volatility spillover (i.e., connectedness) is elevated between large-, mid-, and small-cap stocks during the study period. This high level of spillover exists in the short run only, and declines gradually in the medium to long run, thus providing opportunities for portfolio diversification (hedging) in multi-cap investing during the medium-to-long run (short run) only. Like total connectedness, a similar pattern of bilateral connectedness is observed between either of the two indices, thus providing a similar opportunity in the short and long runs. The mid-cap index emerges as the major contributor to total volatility in the system, followed by the small- and large-cap indices, during the analyzed period. The volatility spillover is time-varying in both the time and frequency domains.

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