Time and frequency uncertainty spillover among macro uncertainty, financial stress and asset markets

Ujjawal Sawarn and Pradyumna Dash

Studies in Economics and Finance, 2023, vol. 40, issue 3, 500-526

Abstract: Purpose - This study aims to examine the uncertainty spillover among eight important asset classes (cryptocurrencies, US stocks, US bonds, US dollar, agriculture, metal, oil and gold) using weekly data from 2014 to 2020. This study also examines the US macro uncertainty and US financial stress spillover on these assets. Design/methodology/approach - The authors use time–frequency connectedness method to study the uncertainty spillover among the asset classes. Findings - This study’s findings revealed that the uncertainty spillover is time-varying and peaked during the 2016 oil supply glut and COVID-19 pandemic. US stocks are the highest transmitter of uncertainty to all other assets, followed by the US dollar and oil. US stocks (US dollar and oil) transmit uncertainty in long (short) term. Furthermore, US macro uncertainty is the net transmitter of uncertainty to the US stocks, industrial metals and oil markets. In contrast, US financial stress is the net transmitter of uncertainty to the US bonds, cryptocurrencies, the US dollar and gold markets. US financial stress (US macro uncertainty) has long (short)-term effects on asset price volatility. Originality/value - This study complements the studies on volatility spillover among the important asset classes. This study also includes recently financialized asset classes such as cryptocurrencies, agricultural and industrial commodities. This study examines the macro uncertainty and financial stress spillover on these assets.

Keywords: Macro uncertainty; Financial stress; Uncertainty spillover; COVID-19 pandemic; D8; E6; F3; G1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-11-2022-0518

DOI: 10.1108/SEF-11-2022-0518

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