Spillover Connectedness among Global Uncertainties and Sectorial Indices of Pakistan: Evidence from Quantile Connectedness Approach

Abstract

This study empirically examines the spillovers from global uncertainties to the sectoral indices of the Pakistan stock market (PSX). Furthermore, we select three major sectoral indices, i.e., the energy, financial, and material composite indices. These indices represent a massive capital volume of PSX. We utilize the data from 10 May 2002 to 27 June 2022 to examine the outbreak due to the global financial crisis (GFC) of 2007–2008 and the impact of the world’s great pandemic, of COVID-19. Additionally, we applied a novel econometric estimation approach: quantile connectedness. We found that connectedness is strong in the case of highly positive changes (above the 20% quantile) and highly negative changes (below the 80% quantile). Additionally, the study also found that materials sector is the least connected at level of 1.58%. In contrast, the financial sector was a strong transmitter of spillovers during the entire study period at connectedness of 54.59%. Regarding graphical results, we found that economic policy uncertainty (EPU) and crude oil index (WTI) are net transmitters, especially during the financial crisis and COVID-19, whereas WTI transmitting impact was significantly dominant during GFC 2007–2008. Conversely, the index MSCI remains the recipient of the spillover during the entire study period, where the remitting effect was observed as dominant during the GFC, and COVID-19 outbreak. The energy sector was found to be more recipient during the GFC, with additional turn transmitters of the shocks after the COVID-19 pandemic. The study recommends that portfolio managers and individual investors consider the materials sector for their investment due to the least connectivity. Similarly, investors need to invest carefully in the financial sector because it is a net transmitter of spillovers to other sectors.

Dynamic Connectedness between Crypto and Conventional Financial Assets: Novel Findings from Russian Financial Market

“…In addition, crypto assets are seen as diversification tools for investment portfolios in matching to the gold as other studies [23] consider the gold as safe haven. During economic crises, the correlation between crypto assets and traditional assets are low potentially providing diversification benefits [18].…”

Novel COVID-19 Outbreak and Global Uncertainty in the Top-10 Affected Countries: Evidence from Wavelet Coherence Approach

“…A set of studies reveals the connection between exchange rate volatility and the pandemic [62,63]. Ref.…”