Title: Time-varying co-movements among financial and financialised assets: The cyclical variation of the cross-asset nexus
Authors: Jiaying Wu - Brunel University (United Kingdom) [presenting]
Menelaos Karanasos - Brunel University (United Kingdom)
Starvoula Yfanti - Loughborough University (United Kingdom)
Abstract: The phenomenal financialisation of non-financial markets over the past two decades can act as a potent threat to financial stability given its contribution to financial contagion and systemic risk build-ups. We study the dynamic interdependence between stocks, a risky and financial by definition asset class, and the financialised assets from the real estate and commodity markets. Through a trivariate DCC-MIDAS setting, we analyse short- and long-run time-varying correlation dynamics among global stocks, real estate benchmarks, and five different commodity types: energy, precious metals, industrial metals, agriculture, and livestock. The empirical results demonstrate either strong cross-asset interlinkages highly dependent on the state of the economy in many cases or weak connectedness for certain assets with hedging or safe-haven properties. We further investigate the macro-relevance and crisis-vulnerability of the evolution of the correlation by unveiling the macro-determinants of asset co-movements and the significant contagion effects during crisis periods. The economic environment plays a key role as a contagion transmitter, while the uncertainty channel intensifies the macro impact on the cross-asset nexus.