Extreme time-frequency connectedness across U.S. sector stock and commodity futures markets

Purba Bhattacherjee, Sibanjan Mishra and Sang Hoon Kang

International Review of Economics & Finance, 2024, vol. 93, issue PB, 1176-1197

Abstract: This study investigates the extreme time-frequency return connectedness between ten U.S. sectors and commodities from January 2014 to May 2023. Using quantile time-frequency measures, we find the following: Firstly, the total connectedness estimates are more sensitive at shorter frequencies than at longer ones. Secondly, the study reveals varied degrees of contagion during crisis periods. Notably, during COVID-19 (Russia-Ukraine conflict), the contagion is driven by short-term (long-term) shocks, specifically during the bearish (bullish) phase. Thirdly, quantile connectedness measures depict intense correlations around market extremes, underlining dynamic net return-contagion with tailored risk strategies. The shifts in shock transmission roles during bearish and bullish scenarios, along with evolving dynamics across time-frequency horizons, emphasize substantial interconnectedness within the network. Our findings suggest limited diversification scope under extreme market conditions, informing investment decisions, risk management, and portfolio optimization.

Keywords: U.S. sectoral indices; Commodity markets; Quantile spillover; Time-frequency analysis; Portfolio management; COVID-19; Geopolitical crisis (search for similar items in EconPapers)
JEL-codes: C32 F30 G10 Q43 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:93:y:2024:i:pb:p:1176-1197

DOI: 10.1016/j.iref.2024.05.021

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