Measuring the Frequency Dynamics of Connectedness and Systemic Risk In Iranian Stock Market
Parisa Mohajeri
1
(
Associate professor of economics, allameh tabataba'i university
)
Reza Taleblou
2
(
Associate Professor of Economics, Allameh Tabataba'i University
)
Zahra Zabihi
3
(
PhD Student of Financial economics and econometrics, Faculty of Economics, Allameh Tabatab'i University
)
Keywords: Systemic Risk, Frequency Connectedness, Volatility Spillovers, Time-Varying Parameter Vector Autoregressive (TVP-VAR) Model,
Abstract :
In this paper, we investigate the dynamics of risk transmission among a set of listed industries of the Iranian stock market by combining frequency connectedness (Barunik and Krehlik, 2018) with the time-varying connectedness approach (Antonakakis et al., 2020). In this article, focusing on the return volatilities of 20 industries during the period of 1388/07/01 to 1402/06/31, the static and dynamic connectedness Indices are estimated for low, medium and high frequency. The results reveal several noteworthy findings: First, there has been a very strong co-movement over time in the stock market industries and more than 80% of each industry’s volatilities being attributed to systemic risk in recent years. Second, volatility spillovers are primarily concentrated in the short-term, while long-term connectedness plays a less pivotal role. Third, non-metal ores, real estate and basic metals emerge as the biggest transmitters of shocks in the stock market, while sugar, transportation and petroleum products are the principal receivers of these shocks. Fourth, the risk transmission process in most industries is rapid, with more than 70% of the volatility being transferred within 1 to 10 days. Fifth, there are strong pairwise connectedness between the four major commodity-oriented industries. Our exploration of inter-sectoral connectedness serves as a vital guide for policymakers in designing growth-stimulating policies and implementing appropraite measures to mitigate the systemic risk contagion. Additionally, it provides a valuable tool for constructing optimal investment portfolios that are resilient against systemic risks.
