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The dynamics of frequency connectedness between technology ETFs and uncertainty indices under extreme market conditions

Author

Listed:
  • Oguzhan Ozcelebi

    (Istanbul University)

  • Ronald McIver

    (University of South Australia)

  • Sang Hoon Kang

    (Pusan National University)

Abstract

We examine technology ETF and uncertainty index (VIX, GVZ, and OVZ) spillover dynamics and quantile frequency interconnectedness across market states. This study is the first to use quantile-frequency spillover, quadruple wavelet coherence, and wavelet quantile correlation methodologies to facilitate these analyses. The total connectedness index value is 70%, which is much higher in both the upper and lower quantiles. Under normal market conditions, short-term connectedness significantly exceeds long-term connectedness. Levels of ETF-uncertainty indicator connectedness increase under extreme market conditions; most technology ETFs are net spillover transmitters and uncertainty indices net spillover receivers, indicating the contagion risk of ETF investments. We show that while greater ETF-uncertainty index connectedness may benefit portfolio diversification, large fluctuations in technology EFTs can result in financial instability due to high market volatility. In the long term, the joint effects of uncertainty indices on ETFs are significant, with negative correlations between ETFs and uncertainties at different frequencies, supporting the potential role of uncertainty indices in hedging technology ETF portfolio risks. Dynamic portfolio rebalancing, scenario analysis, and stress testing may help to manage the effects of high connectedness.

Suggested Citation

  • Oguzhan Ozcelebi & Ronald McIver & Sang Hoon Kang, 2025. "The dynamics of frequency connectedness between technology ETFs and uncertainty indices under extreme market conditions," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-33, December.
    • Handle: RePEc:spr:fininn:v:11:y:2025:i:1:d:10.1186_s40854-025-00760-5
    DOI: 10.1186/s40854-025-00760-5
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    Keywords

    ETFs; Uncertainty indexes; Quantile-frequency connectedness; Wavelet quantile correlation; Quadruple wavelet coherence; Network analysis;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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