Uncertainty and Innovation Markets: Horizon-Dependent Connectedness Under Market and Geopolitical Risk

This paper examines how market-based and geopolitical uncertainty relate to volatility dynamics in innovation-focused equity portfolios across investment horizons. Using daily data from mid-2015 to early-2025 for the VIX, a geopolitical risk index (GPR), and four innovation benchmarks (MSCI Digital Economy, S&P Kensho Moonshots, QQQ, and ARKK), we implement a GARCH–wavelet–VAR connectedness framework, complemented by wavelet coherence evidence. The results show that uncertainty–market dependence is regime dependent and becomes more pronounced at medium and long horizons. Market-based uncertainty (VIX) remains the central contributor to system-wide variance sharing across horizons, while geopolitical risk is comparatively muted in the short run but becomes more relevant over longer horizons. Innovation portfolios are highly exposed to these uncertainty dynamics, with the strongest vulnerability concentrated in the innovation-heavy indices, particularly at longer horizons. Dynamic connectedness further indicates substantial time variation, with persistent connectedness strengthening during major stress episodes. Overall, the findings support frequency-aware risk management and macro-financial monitoring of innovation allocations.