Does bad volatility trump good volatility? A signal of asymmetric connectedness in the currency and crude oil markets using high-frequency data

This research proposal aims to analyze the asymmetric connectedness between the spot prices of West Texas Intermediate crude oil and six popular currencies?the Euro, Japanese Yen, British Pound, Australian Dollar, Swiss Franc, and Canadian Dollar. We will use the recent methodology developed by Barun?k et al. (2017). Our study is expected to make several contributions to the financial analysis literature. Firstly, it is pioneering in that it uses recent estimation techniques to assess the asymmetric and time-varying connectedness in six popular traded currencies?the Euro (EUR), Japanese Yen (JPY), British Pound (GBP), Australian Dollar (AUD), Swiss Franc (CHF), and Canadian Dollar (CAD)?and crude oil markets using tick-by-tick spot prices. Secondly, this is the only study to measure the net directional spillover in daily realized volatility as well as the net asymmetric direction in semi-variances for each asset. The adopted methodology is significant for market participants because it influences investors? decisions to hedge their positions. Connectedness measures based on network models help investors and portfolio managers improve the detection and assessment of spillovers along with their dynamics (Diebold and Yilmaz, 2014). Our method uses the realized semi-variance framework of Barndorff-Nielsen et al. (210) and quantifies the asymmetric volatility spillovers to split volatility spillovers into negative and positive returns. Lastly, the pairwise directional network and net pairwise directional network in semi-variances will be used to evaluate the asymmetric connectedness network in the sample markets. These assist the study?s endeavor to present a detailed time-varying analysis of the transmission and receipt of good and bad volatilities across the currency and crude oil markets. Identifying net transmitters and recipients of information and the propagation path of negative volatility across the exchange rate and crude oil markets has important policy implications for traders and investors interesting by energy and currency markets in terms of asset allocations, portfolio management and decision making process. Policy makers wishing to mitigate the adverse effects of volatility contagion in the currency and crude oil markets can also obtain important information from our findings.