in: UNU-MERIT Working Paper 2022-017
This paper uses the Quantile Vector-Autoregressive (Q-VAR) connectedness technique to examine the return and volatility connectedness among NFTs and (un)conventional assets including cryptocurrency, energy, technology, equity, precious metals, and fixed income financial assets across three quantiles corresponding to the normal, bearish, and bullish market conditions. It also explores the predictive powers of major macroeconomic and geopolitical indicators on the return and volatility connectedness across these three market conditions using a linear regression model. The main findings are as follows. First, the return and volatility connectedness vary across the market conditions, with the levels during the bearish and bullish market conditions being higher. Second, except under the bullish market condition, the total return connectedness is higher than those of total volatility connectedness. Third, NFTs are, at best, decoupled from (un)conventional assets during the normal market condition. Fourth, NFTs is a net return shock receivers except under the bullish market condition where it is a net transmitters. However, it is a net volatility shock receiver irrespective of the market condition. Fifth, during periods of economic crisis the total return and volatility connectedness rise (decreases) under the normal and bearish (bullish) market conditions. Finally, geopolitical risks, business environment conditions, and market and economic policy uncertainty are important predictors of return and volatility connectedness, although the predictive strength and direction vary across market conditions. We discuss the implications of our findings.