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

Finance Research Letters, 2023, vol. 55, issue PA

Abstract: Using the TYDL causality test, this paper attempts (i) to investigate the existence of shift contagion 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 structure. 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 uncertainty it entailed, has again exacerbated the interdependencies between financial markets. In terms of portfolio analysis, our minimum-causal-intensity approach records a lower (respectively 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: 2023
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Shift Contagion and Minimum Causal Intensity Portfolio During the COVID-19 and the Ongoing Russia-Ukraine Conflict (2024)
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:eee:finlet:v:55:y:2023:i:pa:s1544612323002258

DOI: 10.1016/j.frl.2023.103853

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