Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management

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-, an...

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Autores principales:	Sangram Keshari Jena, Aviral Kumar Tiwari, Ashutosh Dash, Emmanuel Joel Aikins Abakah
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	volatility spillover connectedness large-, mid-, and small-cap portfolio diversification and hedging time frequency domain Risk in industry. Risk management HD61 Finance HG1-9999
Acceso en línea:	https://doaj.org/article/ea6562b4c83a4d96989e2021bbe132d5
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spelling	oai:doaj.org-article:ea6562b4c83a4d96989e2021bbe132d52021-11-25T18:08:36ZVolatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management10.3390/jrfm141105311911-80741911-8066https://doaj.org/article/ea6562b4c83a4d96989e2021bbe132d52021-11-01T00:00:00Zhttps://www.mdpi.com/1911-8074/14/11/531https://doaj.org/toc/1911-8066https://doaj.org/toc/1911-8074The 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.Sangram Keshari JenaAviral Kumar TiwariAshutosh DashEmmanuel Joel Aikins AbakahMDPI AGarticlevolatility spilloverconnectednesslarge-, mid-, and small-capportfolio diversification and hedgingtimefrequency domainRisk in industry. Risk managementHD61FinanceHG1-9999ENJournal of Risk and Financial Management, Vol 14, Iss 531, p 531 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	volatility spillover connectedness large-, mid-, and small-cap portfolio diversification and hedging time frequency domain Risk in industry. Risk management HD61 Finance HG1-9999
spellingShingle	volatility spillover connectedness large-, mid-, and small-cap portfolio diversification and hedging time frequency domain Risk in industry. Risk management HD61 Finance HG1-9999 Sangram Keshari Jena Aviral Kumar Tiwari Ashutosh Dash Emmanuel Joel Aikins Abakah Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management
description	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.
format	article
author	Sangram Keshari Jena Aviral Kumar Tiwari Ashutosh Dash Emmanuel Joel Aikins Abakah
author_facet	Sangram Keshari Jena Aviral Kumar Tiwari Ashutosh Dash Emmanuel Joel Aikins Abakah
author_sort	Sangram Keshari Jena
title	Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management
title_short	Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management
title_full	Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management
title_fullStr	Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management
title_full_unstemmed	Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management
title_sort	volatility spillover dynamics between large-, mid-, and small-cap stocks in the time-frequency domain: implications for portfolio management
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/ea6562b4c83a4d96989e2021bbe132d5
work_keys_str_mv	AT sangramkesharijena volatilityspilloverdynamicsbetweenlargemidandsmallcapstocksinthetimefrequencydomainimplicationsforportfoliomanagement AT aviralkumartiwari volatilityspilloverdynamicsbetweenlargemidandsmallcapstocksinthetimefrequencydomainimplicationsforportfoliomanagement AT ashutoshdash volatilityspilloverdynamicsbetweenlargemidandsmallcapstocksinthetimefrequencydomainimplicationsforportfoliomanagement AT emmanueljoelaikinsabakah volatilityspilloverdynamicsbetweenlargemidandsmallcapstocksinthetimefrequencydomainimplicationsforportfoliomanagement
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Volatility Spillover Dynamics between Large-, Mid-, and Small-Cap Stocks in the Time-Frequency Domain: Implications for Portfolio Management

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