A1798
Title: The short- and long-run cyclical variation of the cross-asset nexus
Authors: Menelaos Karanasos - Brunel University (United Kingdom)
Starvoula Yfanti - Queen Mary University of London (United Kingdom) [presenting]
Jiaying Wu - Brunel University (United Kingdom)
Abstract: The dynamic interdependence is studied between stocks, a risky and financial "by definition" asset class, and the "financialised" assets from the real estate and commodity markets. Through a trivariate corrected-DCC-MIDAS setting (a new modified version of the well-established MIDAS correlations), short- and long-run time-varying correlation dynamics are analysed among stocks, real estate, and five commodity types: energy, precious metals, industrial metals, agriculture, and livestock. The correlation analysis identifies short- and long-run hedging properties and interdependence types and concludes on strong countercyclical cross-asset interlinkages, highly dependent on the state of the economy in most cases (contagion effects) and weak procyclical connectedness for certain assets with safe-haven properties (flight-to-quality). The macro-relevance and crisis-vulnerability of the correlations' evolution are further investigated by unveiling the macro-determinants of asset co-movements. The economic environment plays a key role as a contagion or flight-to-quality transmitter, while the uncertainty channel intensifies the macro impact on the cross-asset nexus.
