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Financial products are interconnected through the balance sheet and affect the overall economic system by connectedness. Investors are interested in the connectedness of markets, so our study investigated spillover dynamics and their influence on ESG and non-ESG-oriented banks in the USA. Our dataset comprises 2319 observations from January 1, 2015, to November 22, 2023. We employed the spillover index of Diebold and Yilmaz (2012) to conduct an extensive analysis of ESG-oriented and non-ESG-oriented banks in the USA. The study uncovered significant differences in interconnectedness and spillover effects between ESG-oriented and non-ESG-oriented banks, particularly during regular periods and the COVID-19 pandemic. ESG-oriented banks, in particular, exhibit higher levels of interconnectedness, with notable spillovers among themselves, indicating a need for cross-market diversification to manage risk. In contrast, non-ESG-oriented banks demonstrate lower interconnectedness and spillover effects. The study highlights the potential benefits of portfolio diversification across ESG and non-ESG banks. The research concludes that such diversification can offer significant risk reduction benefits. Findings suggested that banks must incorporate ESG and non-ESG investments in their portfolio to mitigate overall risk.  Banks’ adoption of ESG standards may lead to investing in fewer projects, leading to ESG constraints in portfolio optimization. In this way, ESG investment restricts and constrains the diversification of portfolios, which increases risk and contagion.

Financial products are interconnected through the balance sheet and affect the overall economic system by connectedness. Investors are interested in the connectedness of markets, so our study investigated spillover dynamics and their influence on ESG and non-ESG-oriented banks in the USA. Our dataset comprises 2319 observations from January 1, 2015, to November 22, 2023. We employed the spillover index of Diebold and Yilmaz (2012) to conduct an extensive analysis of ESG-oriented and non-ESG-oriented banks in the USA. The study uncovered significant differences in interconnectedness and spillover effects between ESG-oriented and non-ESG-oriented banks, particularly during regular periods and the COVID-19 pandemic. ESG-oriented banks, in particular, exhibit higher levels of interconnectedness, with notable spillovers among themselves, indicating a need for cross-market diversification to manage risk. In contrast, non-ESG-oriented banks demonstrate lower interconnectedness and spillover effects. The study highlights the potential benefits of portfolio diversification across ESG and non-ESG banks. The research concludes that such diversification can offer significant risk reduction benefits. Findings suggested that banks must incorporate ESG and non-ESG investments in their portfolio to mitigate overall risk.  Banks’ adoption of ESG standards may lead to investing in fewer projects, leading to ESG constraints in portfolio optimization. In this way, ESG investment restricts and constrains the diversification of portfolios, which increases risk and contagion.

This article applies two measures to assess spillovers across markets: the Diebold and Yilmaz’s (2012) spillover index and the Hafner and Herwartz’s (2006) analysis of multivariate GARCH models using volatility impulse response analysis. We use two sets of data, daily realized volatility (RV) estimates taken from the Oxford-Man RV library, for the S&P500 and the FTSE, plus 10 years of daily returns series for the New York Stock Exchange Index and the FTSE 100 index. Both data sets capture both the global Financial Crisis (GFC) and the subsequent European Sovereign Debt Crisis (ESDC). The spillover index captures the transmission of volatility to and from markets, plus net spillovers. The Volatility Impulse Responses (VIRF) have to be calibrated to conditional volatility estimated at a particular point in time. We explore the impact of three different shocks, the onse

In this study we analyse the role of speculation in forging cross-market linkages between agriculture, equity and crude oil over the period 1992-2014. The market interdependence of ten U.S. traded agricultural commodities futures is measured through the spillover index of Diebold and Yilmaz (2009, 2012) and the dynamic conditional correlation framework of Engle (2002). Utilising data from the U.S. Commodity Futures Trading Commission, ve dierent measures of speculation are constructed, which are used to examine the long-run and short-run dynamics between market integration and speculation. To explore time-varying characteristics in this relationship, and as a test for robustness, we perform a sub-sampling analysis for the periods 1992-2006 and 2006-2014. We show that cross-market linkages grew stronger post-2005, particularly in the aftermath of the 2008 global financial crisis. The results of our econometric analysis indicate that any conclusions regarding the role of speculation in this process are highly sensitive both to the choice of market integration measure, as well as to how the extent of speculation is captured. Overall, though, there is little to indicate that speculation has played an important role in creating cross-market linkages. We do provide some evidence of market integration increasing with market size, but other factors, such as inflation and exchange rates, seem to provide better explanations of agriculture-equity-energy price dynamics. In line with previous research, we also find market interdependence to increase with stock market uncertainty, which suggests that the diversification benefits of commodity futures investments are actually reduced when needed the most. Considered together with our findings on the sizes of markets, which are increasingly made up of speculators, it appears at least possible that financialisation has made food markets more vulnerable to disturbances in financial markets.

In this study we analyse the role of speculation in forging cross-market linkages between agriculture, equity and crude oil over the period 1992-2014. The market interdependence of ten U.S. traded agricultural commodities futures is measured through the spillover index of Diebold and Yilmaz (2009, 2012) and the dynamic conditional correlation framework of Engle (2002). Utilising data from the U.S. Commodity Futures Trading Commission, ve dierent measures of speculation are constructed, which are used to examine the long-run and short-run dynamics between market integration and speculation. To explore time-varying characteristics in this relationship, and as a test for robustness, we perform a sub-sampling analysis for the periods 1992-2006 and 2006-2014. We show that cross-market linkages grew stronger post-2005, particularly in the aftermath of the 2008 global financial crisis. The results of our econometric analysis indicate that any conclusions regarding the role of speculation in this process are highly sensitive both to the choice of market integration measure, as well as to how the extent of speculation is captured. Overall, though, there is little to indicate that speculation has played an important role in creating cross-market linkages. We do provide some evidence of market integration increasing with market size, but other factors, such as inflation and exchange rates, seem to provide better explanations of agriculture-equity-energy price dynamics. In line with previous research, we also find market interdependence to increase with stock market uncertainty, which suggests that the diversification benefits of commodity futures investments are actually reduced when needed the most. Considered together with our findings on the sizes of markets, which are increasingly made up of speculators, it appears at least possible that financialisation has made food markets more vulnerable to disturbances in financial markets.

Allen, D. E., McAleer, M., Powell, R., & Singh, A. K. (2017). Volatility spillover and multivariate volatility impulse response analysis of GFC news events. Applied Economics, 49(33), 3246-3262. Available here

Golab, A., & Zamojska, A. (2019). Volatility spillovers between European financial markets: Evidence since the Brexit. International Journal of Business and Globalisation, 23(3), 345-366. Available here.

This study provides evidence that international stock investors’ transactions are a cause of stock market comovements. We analyze return and volatility spillovers between eight major stock markets and stocks cross-listed on an accessible market (H-shares in Hong Kong) and an inaccessible market (A-shares in mainland China) by applying the spillover indexes proposed by Diebold and Yilmaz (2012, 2014) to those markets. Results suggest that spillovers of both return and volatility are greater in an accessible market than in an inaccessible one. We also find that spillover effects intensify as openness of a stock market increases.

This study provides evidence that international stock investors’ transactions are a cause of stock market comovements. We analyze return and volatility spillovers between eight major stock markets and stocks cross-listed on an accessible market (H-shares in Hong Kong) and an inaccessible market (A-shares in mainland China) by applying the spillover indexes proposed by Diebold and Yilmaz (2012, 2014) to those markets. Results suggest that spillovers of both return and volatility are greater in an accessible market than in an inaccessible one. We also find that spillover effects intensify as openness of a stock market increases.