Global uncertainties and Australian financial markets: Quantile time-frequency connectedness

Umaid A. Sheikh, Mehrad Asadi, David Roubaud and Shawkat Hammoudeh

International Review of Financial Analysis, 2024, vol. 92, issue C

Abstract: Contrary to previous research, this study examines the transmission mechanisms between daily trade policy uncertainty (TPU), geopolitical risk (GPR), global financial stress index (FSI) and the three Australian financial markets (i.e., conventional, sustainable, Islamic stock markets) by using the quantile time-frequency connectedness approach. We also utilize the DCC-GARCH-t copula approach to examine the hedging effectiveness of the Australian sustainable and Islamic financial markets against the Australian conventional market's long-term volatility during high and low uncertainty. The time domain QVAR approach show that the Australian sustainable financial market returns receive the highest spillovers of shocks from TPU, FSI and GPR at the lower, medium and higher quantiles. Moreover, in the short term, at the lower quantiles the sustainable financial market receives the highest error variance contributions from FSI, while at higher quantiles, TPU, FSI and GPR transmit higher spillovers of shocks towards the sustainable market. Similarly, in the long term, the sustainable market receives the highest contributions to the error variances from TPU, FSI and GPR (GPR and TPU) at the lower (higher) quantiles. Moreover, at the lower, middle and higher quantiles, a shock in the Islamic (sustainable) market returns causes the highest contribution of error variances in the conventional market, compared with the (sustainable) Islamic market in the short and long run. Finally, the hedging strategy results show that investment in the Islamic financial market is the cheapest hedge against the long-term conventional market risk during high and low uncertainty periods.

Keywords: QVAR dynamic time and frequency connectedness; Trade policy uncertainty; geopolitical risk; global financial stress indices; Hedging effectiveness (search for similar items in EconPapers)
JEL-codes: C58 D53 G1 G14 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521924000309
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:92:y:2024:i:c:s1057521924000309

DOI: 10.1016/j.irfa.2024.103098

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().