TY - JOUR
T1 - Dynamic spillovers in higher moments and jumps across ETFs and economic and financial uncertainty factors in the context of successive shocks
AU - Alomari, Mohammed
AU - Selmi, Refk
AU - Mensi, Walid
AU - Ko, Hee Un
AU - Kang, Sang Hoon
N1 - Publisher Copyright:
© 2023 Board of Trustees of the University of Illinois
PY - 2024/2/1
Y1 - 2024/2/1
N2 - Hedging is a particularly important tool in the Exchange Traded Fund (ETF) markets where market makers seek the best ways to mitigate the uncertainty of their exposures. This study relies on high frequency data to assess the spillover effects among ten US sector ETFs and various economic and financial uncertainty indexes based on realized volatility, realized higher moments as well as jumps under a relatively new spillover framework. Next, a time-varying parameter vector autoregression (TVP-VAR) model is used to examine the dynamic connectedness among ETFs and uncertainty factors volatilities while avoiding the sensitivity of spillover results to the choice of the rolling window. Our results showcase higher total connectedness between the different uncertainty indexes and ETFs, though with varying sensitivities. Notably, skewness and kurtosis can spread from one market to another, especially during times of market turbulence, reflecting the significant spillovers in higher-order moments. Interestingly, the market's 30-day forward looking expectations of US stock market volatility (VIX) has stronger effect on the US sector equity ETFs than the expected 30-day volatility of returns on oil and gold. This analysis emphasizes the implications and contributions of assessing the spillover in higher-order moments covering volatility, skewness, and kurtosis to portfolio hedging and financial risk management. Overall, the results are of considerable practical interest for economic and market agents who are keen to understand market integration and systemic risk propagation to infer asymmetric or fat tail risk related to extreme or downside/upside risks.
AB - Hedging is a particularly important tool in the Exchange Traded Fund (ETF) markets where market makers seek the best ways to mitigate the uncertainty of their exposures. This study relies on high frequency data to assess the spillover effects among ten US sector ETFs and various economic and financial uncertainty indexes based on realized volatility, realized higher moments as well as jumps under a relatively new spillover framework. Next, a time-varying parameter vector autoregression (TVP-VAR) model is used to examine the dynamic connectedness among ETFs and uncertainty factors volatilities while avoiding the sensitivity of spillover results to the choice of the rolling window. Our results showcase higher total connectedness between the different uncertainty indexes and ETFs, though with varying sensitivities. Notably, skewness and kurtosis can spread from one market to another, especially during times of market turbulence, reflecting the significant spillovers in higher-order moments. Interestingly, the market's 30-day forward looking expectations of US stock market volatility (VIX) has stronger effect on the US sector equity ETFs than the expected 30-day volatility of returns on oil and gold. This analysis emphasizes the implications and contributions of assessing the spillover in higher-order moments covering volatility, skewness, and kurtosis to portfolio hedging and financial risk management. Overall, the results are of considerable practical interest for economic and market agents who are keen to understand market integration and systemic risk propagation to infer asymmetric or fat tail risk related to extreme or downside/upside risks.
KW - Dynamic spillovers
KW - Economic and financial uncertainty indexes
KW - Hedging
KW - Higher moments
KW - Jumps
KW - US sector ETFs
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UR - https://www.mendeley.com/catalogue/3b937676-882a-3bd2-a6bc-dbe97708d627/
U2 - 10.1016/j.qref.2023.12.009
DO - 10.1016/j.qref.2023.12.009
M3 - Article
AN - SCOPUS:85181691610
SN - 1062-9769
VL - 93
SP - 210
EP - 228
JO - Quarterly Review of Economics and Finance
JF - Quarterly Review of Economics and Finance
ER -