Shift Contagion and Minimum Causal Intensity Portfolio During the COVID-19 and the Ongoing Russia-Ukraine Conflict

Amine Ben Amar, Mondher Bouattour, Makram Bellalah () and Stéphane Goutte
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Mondher Bouattour: Excelia Group | La Rochelle Business School
Makram Bellalah: LEFMI - Laboratoire d’Économie, Finance, Management et Innovation - UR UPJV 4286 - UPJV - Université de Picardie Jules Verne

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Abstract: Using the TYDL causality test, this paper attempts (i) to investigate the existence of shift conta- gion among a large spectrum of financial markets during recent stress and stress-free periods and (ii) to propose a new approach of portfolio management based on the minimization of the causal intensity. During the COVID-19 crisis period, the shift contagion analysis not only reveal a tripling of the causal links between the markets studied, but also a change in the causal struc- ture. Beyond the initial impact of the COVID-19 crisis on financial markets, policy interventions seem to have helped in reassuring market participants that the further spread of financial stress would be mitigated. However, the Russian-Ukrainian conflict, and the high degree of uncer- tainty it entailed, has again exacerbated the interdependencies between financial markets. In terms of portfolio analysis, our minimum-causal-intensity approach records a lower (respec- tively higher) reward-to-volatility ratio than the Markowitz (1952 & 1959) minimum-variance traditional approach during the pre-COVID-19 (respectively pre-war) period. On the other hand, both approaches, the one we propose in this paper and the minimum-variance approach, record negative reward-to-volatility ratios during crisis periods.

Keywords: Shift contagion; Diversification; Minimum-causal intensity portfolio; Clean energy; Financial market; Cryptocurrencies; Socially responsible investment (search for similar items in EconPapers)
Date: 2024-03-26
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Related works:
Journal Article: Shift contagion and minimum causal intensity portfolio during the COVID-19 and the ongoing Russia-Ukraine conflict (2023)
Working Paper: Shift contagion and minimum causal intensity portfolio during the COVID-19 and the ongoing Russia-Ukraine conflict (2023)
Working Paper: Shift contagion and minimum causal intensity portfolio during the COVID-19 and the ongoing Russia-Ukraine conflict (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-04522103

DOI: 10.2139/ssrn.4414366

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