The dynamics of frequency connectedness between technology ETFs and uncertainty indices under extreme market conditions

Oguzhan Ozcelebi (), Ronald McIver () and Sang Hoon Kang ()
Additional contact information
Oguzhan Ozcelebi: Istanbul University
Ronald McIver: University of South Australia
Sang Hoon Kang: Pusan National University

Financial Innovation, 2025, vol. 11, issue 1, 1-33

Abstract: Abstract We examine technology ETF and uncertainty index (VIX, GVZ, and OVZ) spillover dynamics and quantile frequency interconnectedness across market states. This study is the first to use quantile-frequency spillover, quadruple wavelet coherence, and wavelet quantile correlation methodologies to facilitate these analyses. The total connectedness index value is 70%, which is much higher in both the upper and lower quantiles. Under normal market conditions, short-term connectedness significantly exceeds long-term connectedness. Levels of ETF-uncertainty indicator connectedness increase under extreme market conditions; most technology ETFs are net spillover transmitters and uncertainty indices net spillover receivers, indicating the contagion risk of ETF investments. We show that while greater ETF-uncertainty index connectedness may benefit portfolio diversification, large fluctuations in technology EFTs can result in financial instability due to high market volatility. In the long term, the joint effects of uncertainty indices on ETFs are significant, with negative correlations between ETFs and uncertainties at different frequencies, supporting the potential role of uncertainty indices in hedging technology ETF portfolio risks. Dynamic portfolio rebalancing, scenario analysis, and stress testing may help to manage the effects of high connectedness.

Keywords: ETFs; Uncertainty indexes; Quantile-frequency connectedness; Wavelet quantile correlation; Quadruple wavelet coherence; Network analysis (search for similar items in EconPapers)
JEL-codes: C40 F36 G14 (search for similar items in EconPapers)
Date: 2025
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1186/s40854-025-00760-5 Abstract (text/html)

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:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-025-00760-5

Ordering information: This journal article can be ordered from
http://www.springer. ... nomics/journal/40589

DOI: 10.1186/s40854-025-00760-5

Access Statistics for this article

Financial Innovation is currently edited by J. Leon Zhao and Zongyi

More articles in Financial Innovation from Springer, Southwestern University of Finance and Economics
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().