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, LGTO - Laboratoire de Gestion et des Transitions Organisationnelles - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse
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 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-causalintensity 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 prewar) 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: socially responsible investment; Shift contagion; diversification; minimum-causal intensity portfolio; clean energy; financial market; cryptocurrencies (search for similar items in EconPapers)
Date: 2023-04
New Economics Papers: this item is included in nep-cis
Note: View the original document on HAL open archive server: https://ut3-toulouseinp.hal.science/hal-04122251v1
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Published in Finance Research Letters, 2023, 55, pp.103853. ⟨10.1016/j.frl.2023.103853⟩

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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)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04122251

DOI: 10.1016/j.frl.2023.103853

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