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This chapter proposes a measure of systemic default interconnectedness between banks, non-banks, housing finance companies in India and globally systemically important banks based on variance decompositions associated with a multiple variable vector autoregression of probability of default of the institutions. We call it the “vulnerability spillover index” (VSI). The vulnerability indices capture all the major macro and financial stress events in the Indian and global economy explaining the interconnections between sectors and underlying reasons for spillovers and potential for a systemic crisis. Thresholds of VSI are calculated which may enable prediction of financial stress events.

We examine how the degree of regional financial integration in African stock markets has evolved over the last eleven years. Despite increasing regional economic cooperation, the process of stock market integration has been slow. To facilitate growth via developed financial markets but keep financial stability risk at a minimum, further regional integration should be promoted, and mild capital controls on non-African investors may be necessary. A Diebold-Yilmaz spillover analysis is applied to ten African stock markets for the period between August 2004 and January 2015. We examine spillovers among four regions and among individual countries. Regional integration, as measured by total spillovers in Africa, is increasing but remains very low. These spillovers were temporarily heightened during the global financial crisis. Cross-regional spillovers are high between Northern and Southern Africa. Asymmetric capital controls on African and non-African investors must be considered to foster further regional integration and to mitigate financial stability risk. This is one of the few studies to address the construction of the future architecture of regionally integrated stock markets in emerging countries.

This work investigates the volatility spillovers across stock markets and the nature of such spillovers through different periods of crises and tranquility.

Using daily stock return volatility data from June 2003 to June 2021, the generalized forecast error variance decomposition method (based on Diebold and Yilmaz, 2012 approach) is employed to measure the degree of volatility spillovers/connectedness among stock markets of 24 Asia–Pacific and 12 European Union (EU) economies.

The empirical results from static analysis suggested that about 28.1% (63.7%) of forecast error variance in return volatility for Asia–Pacific (EU) markets is due to spillovers. The evidence from dynamic analysis suggested that during mid of the global financial crisis, European debt crisis (EDC) and Covid-19, the gross volatility spillovers for Asia–Pacific (EU) was around 67% (80%), 65% (80%) and 73% (67%), respectively. The degree of net volatility transmission from Singapore (Denmark) to other Asia–Pacific (EU) markets was found to be highest.

The findings have crucial implications for the investors and portfolio managers in assessment of risk and optimum allocation of assets and investment decisions.

This study adds to the literature on risk management by systematically examining the impact of global financial crises, EDC and Covid-19 on the market interactions by capturing the magnitude, duration and pattern of the shock-specific market volatilities for a large sample of Asian and European markets using recent and large data set.

The purpose of this paper is to empirically examine return and volatility spillovers between oil and the stock markets of Nigeria and South Africa.

The authors make use of an innovative new methodology of capturing spillovers, which is different from what many existing studies use. The authors employ the measures of return spillovers and volatility spillovers of Diebold and Yilmaz (2009, 2012), referred to as spillover indexes. The spillover index facilitates an assessment of the net contribution of one market in the information transmission mechanism of another market.

The empirical results show bi-directional, but weak interdependence between the South African and Nigerian stock markets returns and oil market returns. The results for volatility spillovers show independence of volatilities between Nigeria stock markets and oil markets, while weak bi-directional spillovers were found between South African equity volatilities and oil volatilities. The time-varying total spillover plots for returns and volatilities are broadly similar and show a trend that has been observed in other studies: an increasing trend during the non-crisis period, a burst in the crisis year, a maintained higher level of transmission afterwards.

Existing studies examining spillovers between oil and stock markets have largely ignored Sub-Saharan African markets. A common feature of existing studies is that they have been conducted for two groups of countries: either European and US markets; or Gulf Cooperation Council markets Thus, this study fills this gap in the literature by examining return and volatility spillovers between oil and the stock markets of Nigeria and South Africa.

Banks in the South Asian region are the fulcrum of economic growth and development as they provide means to development credit and working capital, trade and infrastructure finance and are seen as custodians of the trust in the financial system. This paper aims to study the nature of banking sector linkages for the region.

The dependence structure between deposits and lending rates individually for the banks of the South Asian countries are studied using time invariant and time varying family of copula functions. The degree of connectedness is further studied by Diebold and Yilmaz methodology.

Results indicate poor levels of banking integration in the region as the dependence parameter for both deposits and lending rates was around 0 for the sample countries, thereby confirming poor banking sector integration in the region.

Policymakers of the region are interested in the co-movements of the interest rates to understand the cross-sector risk management and any systemic risk pressures for the regional economies. Corporates in these countries are scouting out for competitive borrowing rates to lower their cost of capital.

Rationale for examining the banking sector linkages is that the South Asian countries are at different stages of economic growth and development and this region in particular is the fastest growing region in the world and has largely increased its trade integration with the world albeit having lowest levels of intra-regional trade integration.

This is a first of a kind of studies to examine the banking sector linkages in South Asia.

This study aims to investigate the impact of the COVID-19 pandemic on both of stock prices and investor's sentiment in China during the onset of the COVID-19 crisis.

In this study, the ADCC-GARCH model was used to analyze the asymmetric volatility and the time-varying conditional correlation among the Chinese stock market, the investors' sentiment and its variation. The authors relied on Diebold and Yilmaz (2012, 2014) methodology to construct network-associated measures. Then, the wavelet coherence model was applied to explore the co-movements between these variables. To check the robustness of the study results, the authors referred to the RavenPack COVID sentiments and the Chinese VIX, as other measures of the investor's sentiment using daily data from December 2019 to December 2021.

Using the ADCC-GARCH model, a strong co-movement was found between the investor's sentiment and the Shanghai index returns during the COVID-19 pandemic. The study results provide a significant peak of connectivity between the investor's sentiment and the Chinese stock market return during the 2015–2016 and the end of 2019–2020 turmoil periods. These periods coincide, respectively, with the 2015 Chinese economy recession and the COVID-19 pandemic outbreak. Furthermore, the wavelet coherence analysis confirms the ADCC results, which revealed that the used proxies of the investor's sentiment can detect the Chinese investors' behavior especially during the health crisis.

This study provides two main types of implications: on the one hand, for investors since it helps them to understand the economic outlook and accordingly design their portfolio strategy and allocate decisions to optimize their portfolios. On the other hand, for portfolios managers, who should pay attention to the volatility spillovers between investor sentiment and the Chinese stock market to predict the financial market dynamics during crises periods and hedge their portfolios.

This study attempted to examine the time-varying interactions between the investor's sentiment proxies and the stock market dynamics. Findings showed that the investor's sentiment is considered a prominent channel of shock spillovers during the COVID-19 crisis, which typically confirms the behavioral contagion theory.

This chapter examines dynamic connectedness among emerging Asian equity markets as well as explores their linkages vis-à-vis other major global markets. We find that international equity markets are tightly integrated. Measuring connectedness based on a generalized Vector Autoregressive (VAR) model, more than half of all total forecast error variance in equity return and volatility shocks come from other markets as opposed to country own shocks. When examining the degree of connectedness over time, we find that international stock markets have become increasingly connected, with a gentle upward trend since the Asian financial crisis (AFC) but with a rapid burst during the global financial crisis (GFC). Despite the growing importance of Asian emerging markets in the world economy, we find that their influence on advanced economies are still relatively small, with no significant increase over time. During the past decade, advanced markets have been consistently net transmitters of shocks while emerging Asian markets act as net receivers. Based on the nature of equity shock spillovers, we also find that advanced countries are still tightly connected among themselves while intraregional connectedness within Asia remains strong. By investigating whether uncertainty plays an important role in explaining the degree of stock market connectedness, we find that economic policy uncertainty (EPU) from the US is an important source of financial shock spillover for the majority of international equity markets. In contrast, US financial market uncertainty as proxied by the VIX index drives equity market spillovers only among advanced economies.

This paper aims to analyze the time-varying connectedness of gold-backed cryptocurrencies and gold. This study determines the volatility spillovers in these two asset classes and the performance of bivariate portfolios based on net pairwise spillovers.

This research uses two Islamic and four conventional gold-backed cryptocurrencies and gold as variables. GJR-GARCH method under corrected DCC (cDCC) of Aielli (2013) evaluates the dynamic connectedness. Additionally, the spillovers are created using the dynamic connectedness of Diebold and Yilmaz (2012). A network-based spillover of Diebold and Yılmaz, (2014) is also made. A dynamic optimal weights strategy optimized with DCC-t-Copula determines bivariate portfolios’ performances. In general, there are 21 bivariate portfolios.

The outbreak of COVID-19 increases the dynamic connectedness of gold and gold-backed cryptocurrencies, which indicates a contagion effect. The results show that gold is the net volatility receiver during the COVID-19 pandemic. Moreover, a portfolio composed of gold and gold-backed cryptocurrency provides high profitability performance but zero hedge effectiveness under optimal weights strategy.

According to bivariate portfolios based on net pairwise spillovers, gold-backed cryptocurrencies' investors should not add gold to their portfolio during the pandemic because it is a net receiver of risk from the cryptocurrencies.

To the best of the author’s knowledge, this is the first paper to create bivariate portfolios composed of gold-backed cryptocurrencies and their underlying asset using DCC-t-Copula.

In seminal work, Den Haan et al. (2007, 2010, 2011) show business loans respond in the opposite direction of what may be intended by monetary policy action in the United States and Canada. Based on various approaches, identification schemes, and samples, we document evidence this loan puzzle is not exclusive to developed economies but is also pervasive in emerging markets. We find business loans generally decline following expansionary monetary policy shocks. A preponderance of statistical and structural evidence indicates important transmissions of this puzzle from the United States to emerging markets.

This study investigate the return and volatility spillover among agricultural commodities and emerging stock markets during various crises, including the COVID-19 pandemic and the Russian-Ukrainian war.

This return and volatility spillover is estimated using Diebold and Yilmaz (2012, 2014) approach.

The results reveal the weak connectedness between agricultural commodities and emerging stock markets. Corn and sugar are the highest and lowest transmitters, respectively, whereas soya bean and coffee are the largest and smallest recipients of spillover over time. Most equity indices are the net recipient except for India, China, Indonesia, Argentina and Mexico, during the entire sample period. Most commodities are net transmitters of volatility spillover except coffee and soya bean. At the same time, major equity indices are the net recipient of the volatility spillover except for India, Indonesia, China, Argentina, Malaysia and Korea. In addition, the return and volatility spillover increase during various crises like the COVID-19 pandemic and the Russian-Ukrainian war, but the major increase in spillovers occurs during the COVID-19 pandemic.

The empirical results show a weak relationship between agricultural commodities and emerging stock markets which is helpful for investors and portfolio managers in the construction and reallocation of their portfolios under different periods, most notably under COVID-19 and the Russian-Ukrainian war.

It is an original paper.