ABSTRACT
We investigate the role of uncertainty in US financial market volatility spillovers by using a directional financial network determined by the nonlinear Granger causality test. We find that uncertainty is an essential volatility transmission channel for financial market volatility spillovers. Financial uncertainty is the most central node in the financial market network. A subsample analysis, excluding the pandemic period, confirms the robustness of our results.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 Benhmad (Citation2012) tests the nonlinear Granger causality based on the Taylor approximation and the artificial neural network. Because we mainly focus on the pairwise Granger causalities between 7 variables, 21 test iterations are needed. Therefore, we directly use the approach of Diks and Panchenko (Citation2006) due to the fact that it requires less complex computations.
2 The pairwise nonlinear Granger causality test results that determine the adjacent matrix in are reported in Appendix 1 due to space limits.
3 Wavelet-based nonlinear Granger causality tests, performed as a research extension, are shown in Appendix 2.