Navigating financial interconnectivity: analyzing oil, exchange rates and US market influences on Asia-Pacific equities using the time-varying parameter vector autoregressive connectedness approach

Purpose The study analyzes return spillovers among key financial markets, including equity indices (NIFTY50, NIKKEI225, KOSPI, ASX200, Shanghai-Composite and Hang-Seng), exchange rates (USD-INR, USD-YEN, USD-WON, USD-AUD and USD-RNMB) and Brent crude oil prices (Brent) in the Asia-Pacific region as well as the NASDAQ index from the US market. Design/methodology/approach This study utilizes the time-varying parameter vector autoregressive (TVP-VAR) connectedness approach to analyze the return spillovers in the Asia-Pacific region covering the period from March 2, 2005 to February 29, 2024. Findings The findings reveal that NASDAQ and NIFTY50R are significant transmitters of financial shocks, exerting a strong influence on other markets. In contrast, the Shanghai Composite Index and the South Korean Won act as net receivers, indicating their vulnerability to external influences. The interconnectedness between Brent crude oil prices and regional financial markets underscores the impact of global commodity price fluctuations on the financial stability of energy-dependent economies. Practical implications The study shows heightened interconnectedness during global financial crises, suggesting that market shocks can propagate more intensely across interconnected systems during such periods. These insights contribute to a better understanding of financial spillovers and highlight the need for effective risk management and policy coordination in the Asia-Pacific region. Originality/value The TVP-VAR connectedness approach is deployed to analyze return spillovers among key financial markets, including equity indices, exchange rates and Brent crude oil prices in the Asia-Pacific region as well as the NASDAQ index from the US market. Research highlights