Asymmetric volatility connectedness among U.S. stock sectors

Abstract

This paper examines the dynamic asymmetric volatility connectedness among ten U.S. stock sectors (Consumer Goods, Consumer Services, Financials, Health Care, Materials, Oil and Gas, Technology, Telecom, Real Estate Investment Trust (REIT), and Utilities). We use the methodology of Diebold and Yilmaz (2012, 2014, 2016) and the realized semivariances introduced by Baruník et al. (2017) to five-minute data. The results show evidence of time-varying spillovers among U.S. stock sectors which is intensified during economic, energy and geopolitical events. Moreover, the spillovers under bad volatility dominates the spillovers under good volatility, supporting evidence of asymmetry. Financials, Materials, Oil and Gas, REIT, Technology, Telecom and Utilities are net receiver of spillover under good volatility (positive semivariance). In contrast, Oil and Gas shift to net contributor of spillover under bad volatility (negative semivariance). Moreover, the connectedness network among sectors exhibits asymmetric behaviors. These results have important implications for risk management.