Abstract:
This study examines the role of cable-based economic policy uncertainty (TV-EPU) in predicting the dynamic interconnectedness among various asset classes. Initially, a quantile-based vector autoregressive (QVAR) connectedness approach is employed to calculate the systemic risk spillovers during different market states. Then, a time-varying causality approach is used to examine whether TV-EPU can predict dynamic risk spillovers across different asset classes under various market conditions. Our results show that the TV-EPU index effectively predicts connectedness under both average and extreme market conditions. This finding highlights the importance of a readily available measure for monitoring systemic risk spillovers among financial assets, providing valuable insights for informed investment decisions and effective risk monitoring.
