Interconnected Markets: How Energy, Green Finance, and APEC Equities Drive Global Volatility

This study explores the evolving interconnectedness among energy markets (Crude Oil, ‎Natural Gas, Heating Oil, GRNSOLAR, GRNWIND, and GRNBIO), gold, technology ‎‎(NDXT), green bonds, and equity markets within APEC economies (S&P 500, TSX, ‎NIKKEI 225, ASX 200, NZX 50, SSEC, SETI, MOEX, KOSPI, and TWII) from January ‎‎2014 to May 2024. Using a time-varying parameter vector autoregressive (TVP-VAR) model, ‎the research unveils dynamic cross-market relationships, with a Total Averaged ‎Connectedness Index (TACI) of 60.68%. This indicates that nearly 60% of forecast error ‎variance originates from cross-market shock transmission, underscoring the high degree of ‎global financial interdependence. Notably, the energy and emerging equity markets ‎demonstrate a connectedness of 45% in the short term (1–5 trading days) as investors swiftly ‎react to economic signals and external shocks. However, this interconnectedness diminishes ‎to 15.48% in the long term, reflecting market resilience as initial impacts dissipate. These ‎findings emphasize the significance of volatility transmission in shaping market dynamics and ‎provide valuable guidance for investors and policymakers in navigating risks within an ‎increasingly interconnected global financial landscape‎.