Tail risk contagion and connectedness between clean cryptocurrency, green assets and commodity markets

Abstract

This study investigates tail contagion risks among seven clean cryptocurrencies (Cardano, EOS, NANO, TRON, Stellar, Tezos, and Ripple), green assets (the Green Bond Index, Global Clean Energy Index, and ESG Leader Index), and strategic commodities (Gold and WTI). To achieve this objective, the Conditional Autoregressive Value at Risk (CAViaR) model (Engle & Manganelli, 2004) and quantile connectedness framework (Ando et al., 2022) are employed. The analysis covers the period from November 9, 2017, to July 31, 2024, encompassing significant financial crises. The findings indicate that green cryptocurrencies are linked to higher tail risks, particularly during market disruptions, whereas green bonds, ESG indices, and gold show greater resilience. Market interconnectedness is notably stronger during extreme conditions, with spillovers more pronounced in the bullish phases. EOS acts as a net receiver, offering diversification, whereas TRX is a net transmitter of systemic risk. XRP and gold shifted their roles, becoming net receivers during crises. During the pandemic, green bonds and gold served as safe havens, whereas in wartime, green bonds became net transmitters. The oil market acts as a net receiver in bearish periods and as a shock transmitter in bullish phases, impacting cryptocurrency markets because of its energy-intensive nature. These findings carry significant financial ramifications for portfolio managers and policymakers, underscoring the necessity of strategic asset allocation and risk management, particularly during periods of market turbulence, to optimize diversification and mitigate systemic risk.