Multidimensional connectedness among the fourth industrial revolution assets

Abstract

This study investigates the multidimensional connectedness between various Fourth Industrial Revolution assets and global commodities to analyze their role in portfolio diversification. Using dynamic conditional correlation-generalized autoregressive conditional heteroskedasticity (DCC-GARCH), Baruník and Křehlík (BK) frequency connectedness, and quantile connectedness, we estimate the time-frequency connectedness involved in the transmission mechanism at the upper, middle, and lower quantiles, using empirical data from April 30, 2018, to January 9, 2023, which incorporates data before and during the pandemic and consider the impact of the Russia-Ukraine conflict. Our findings reveal that Fourth Industrial Revolution assets are highly correlated, especially during periods of stress and crisis, which necessitates portfolio diversification during such periods. We also find that holding these assets over the long run is better than holding them in the short run. Our results indicate that the connectedness network assessed at the conditional median quantile is not reflective of the level of connectedness associated with substantial positive or negative shocks. This study is of high importance to investors in Fourth Industrial Revolution assets.

Keywords

• C59
• G11
• G19
• G32