Volatility spillover dynamics between large-, mid-, and small-cap stocks in the time-frequency domain : implications for portfolio management
Sangram Keshari Jena, Aviral Kumar Tiwari, Ashutosh Dash and Emmanuel Joel Aikins Abakah
The connectedness dynamics between large-, mid-, and small-cap stocks is investigated using the forecasted error variance decomposition (FEVD) spillover framework of Diebold and Yilmaz in the time-frequency domain. Total volatility spillover (i.e., connectedness) is elevated between large-, mid-, and small-cap stocks during the study period. This high level of spillover exists in the short run only, and declines gradually in the medium to long run, thus providing opportunities for portfolio diversification (hedging) in multi-cap investing during the medium-to-long run (short run) only. Like total connectedness, a similar pattern of bilateral connectedness is observed between either of the two indices, thus providing a similar opportunity in the short and long runs. The mid-cap index emerges as the major contributor to total volatility in the system, followed by the small- and large-cap indices, during the analyzed period. The volatility spillover is time-varying in both the time and frequency domains.
Year of publication: |
2021
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Authors: | Jena, Sangram Keshari ; Tiwari, Aviral Kumar ; Dash, Ashutosh ; Abakah, Emmanuel Joel Aikins |
Published in: |
Journal of risk and financial management : JRFM. - Basel : MDPI, ISSN 1911-8074, ZDB-ID 2739117-6. - Vol. 14.2021, 11, Art.-No. 531, p. 1-22
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Subject: | volatility spillover | connectedness | large-, mid-, and small-cap | portfolio diversification and hedging | time | frequency domain | Portfolio-Management | Portfolio selection | Volatilität | Volatility | Spillover-Effekt | Spillover effect | Hedging |
Saved in:
freely available
Type of publication: | Article |
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Type of publication (narrower categories): | Aufsatz in Zeitschrift ; Article in journal |
Language: | English |
Other identifiers: | 10.3390/jrfm14110531 [DOI] hdl:10419/258634 [Handle] |
Classification: | G11 - Portfolio Choice ; G12 - Asset Pricing ; G14 - Information and Market Efficiency; Event Studies |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012795342