Tail risk contagion and multiscale spillovers in the green finance index and large US technology stocks

Abstract

Our purpose is to check the dynamic asymmetric volatility connectedness among the Green Finance Index and six large US technology stocks. The QVAR connectedness framework, the quantile Granger causality test, the TVP-VAR frequency connectedness framework, and the quantile-on-quantile regression (QQR) function were employed to measure the cross-frequency and quantile risk dependencies among these indices. The findings show that: (1) the volatility connectedness effect is higher at extreme tails. In addition, the dynamic spillover between the Green financial index and large US technology stocks is strengthened during bullish market conditions. (2). Net risk spillover characteristics across markets show cyclicality and heterogeneity. The S&P 500 ESG index and Microsoft are the dominant sources of risk. In contrast, the S&P Green Bond Index and Apple act as net recipients of spillovers. (3). Connectedness networks across quartiles exhibit asymmetric behavior. (4). When considering all quartiles, there was a significant Granger causality between the Green Finance Index and major US technology firms. (5). The results of frequency spillovers indicate that long-term frequency spillovers predominate over short-term frequency spillover. The S&P 500 ESG Index contributed risk across frequencies, while green bonds acted as a receiver of risk across frequencies. (6) Utilising the multivariate QQR method, we find the impact of the green finance index on US technology stocks risk exhibited significant non-linear and asymmetric characteristics, demonstrating pronounced cross-quantile heterogeneity. Our empirical findings held practical significance for heterogeneous market participants concerned with the risks associated with green finance and high-tech assets across different investment horizons and market conditions. • During bull market periods, the total connectedness index between markets increased significantly. Under extreme market conditions, all markets exhibited stronger volatility spillover acharacteristics compared to tranquil periods. • The results of the volatility network transmission indicated that the S&P 500 ESG Index, the Dow Jones Sustainability World Index, and Microsoft consistently acted as net risk providers in the transmission network. The S&P Green Bond Index and Apple both accepted risk. • The net spillover effects of all markets varied over time and across quantile levels, exhibiting cyclicality and heterogeneity. • Under all market conditions, there existed significant Granger causality between green finance indices and major U.S. technology companies. From a frequency domain perspective, the variables were more sensitive to the long-term impact of spillover effects. • The direction and magnitude of the impact of green financial asset risk on MATANA stocks differed significantly across different quantile risk levels.