Quantile Co-Movements and Spillovers in Financial Markets: A New Pseudo-Quantile R2 Decomposed Connectedness Approach
Shahzad, S. J. H., Ryan, M., & Gabauer, D. (2026). Working paper.
Abstract
This study presents novel measures of financial connectedness that allow researchers to quantify relationships between markets across the entire return distribution. Specifically, we introduce a pseudo-quantile R2 decomposed connectedness approach that enables the measurement of contemporaneous and lagged interdependencies at any chosen quantile level. We provide evidence showing that our measures avoid overestimating tail connectedness, in contrast to existing quantile-based connectedness measures.
Social Media Co-Attention and Investment Co-Bubbles
Aloosh, A., Choi, H.-E., Ouzan, S., & Shahzad, S. J. H. (2025). Working paper. SSRN
Abstract
This paper investigates retail investor co-attention and price co-explosivity across equity and cryptocurrency markets. Using hourly data from 2023 to 2024, we find that NVIDIA, Bitcoin, and Ethereum, experienced simultaneous episodes of price co-explosivity and retail attention spikes on social media platforms such as Reddit’s WallStreetBets. These findings indicate that price co-bubbles across markets are not isolated anomalies but recurring patterns driven by retail behavior shaped and amplified on social media. The study also distinguishes between asset price co-bubbles and market connectedness, suggesting that they reflect different forms of price interdependence.
Is idiosyncratic risk diversifiable in a cryptocurrency market?
Ahmad, T., Talpsepp, T., & Shahzad, S. J. H. (2025). Working paper. SSRN
Abstract
We examine whether the idiosyncratic volatility (IVOL) premium in the cryptocurrency market is indeed idiosyncratic risk or actually a missing systematic risk factor. We calculate IVOL from a three-factor crypto-pricing model using a sample of over 2000 cryptocurrencies. Contrary to our expectations, our results show a positive IVOL premium in micro-cap cryptos but a negative IVOL premium in non-micro cryptos. The IVOL premium diminishes as we increase the level of diversification in the portfolio, suggesting that it does not represent a missing systematic risk factor. Furthermore, we find that the downside component of IVOL is priced more strongly in the smaller coins, and the good minus bad premium diminishes as we increase the diversification. Our findings highlight that IVOL in the crypto market is rewarded but is diversifiable, which has clear implications for volatility-based trading strategies.
Decomposing Cryptocurrencies Behavioral Anomalies
Shahzad, S. J. H., Bouri, E., Yarovaya, L., & Lucey, B. M. (2024). Working paper. SSRN
Abstract
This paper decomposes the mutual influence of behavioral anomalies in cryptocurrencies pricing. The reversal, recency bias, salience theory, lottery, and anchoring anomalies have a profound economic effect on cryptocurrency returns, which is not subsumed by cryptocurrency specific characteristics. The multivariate anomaly decomposition indicates that salience theory and lottery preferences are omnipresent, whereas recency bias is a standalone phenomenon. The significant interaction and explanation among behavioral anomalies intensify under higher cryptocurrency policy uncertainty and equity market volatility. The commonality among the behavioral anomalies reflects the speculative nature of cryptocurrencies. Thus, caution is necessary when considering behavioral anomalies as pricing factors.
The Utility of Breaking up Environmental, Social, and Governance Scores for Studying Stock Price Crash Risk
Shahzad, S. J. H., Bouri, E., & Ashraf, N. (2024) Revise & Resubmit, International Journal of Tourism Research.
Abstract
This paper examines the crash risk of US travel and leisure firms around the pandemic period, accounting for environmental, social, and governance (ESG) performance. The main results show that, during the pandemic period, US travel and leisure firms with low ESG scores are more exposed to stock price crash risk than US non-travel and leisure firms. The environmental and governance performance of firms provides a cushion or insurance-like protection against crash risk when faced with extreme shocks such as the pandemic. Breaking up the ESG score to give a more in-depth analysis indicates that low environmental but high social performance increases the crash risk of travel and leisure firms. Therefore, the impact of each component of the ESG score should be analysed separately; otherwise, the aggregate ESG impact on stock price crash risk may yield misleading results because environmental and social performance may compete for resources and risk management strategies.
The importance of inflation and climate change for the green stock-bond nexus: A de-risking analysis
Shahzad, S. J. H., Bouri, E., & Ferrer R. (2025) Revise & Resubmit, Research in International Business and Finance.
Abstract
This study examines how inflation expectations and climate change concerns influence the U.S. green stock-bond nexus compared to the traditional nexus, with a focus on the risk-mitigation role of green bonds in portfolios that combine clean energy stocks and green debt. We first employ C-vine copulas to model the dependence structure between clean energy stocks and green bonds, explicitly conditioning on inflation expectations and climate change concerns to isolate their individual effects. We then quantify the de-risking capacity of green bonds under diverse macroeconomic and environmental conditions using a measure based on expected shortfall differences. To provide comparative insight, we assess the risk-reduction properties of U.S. conventional bonds in traditional stock-bond portfolios, highlighting differences between green and conventional market segments. Our empirical findings reveal that green bonds provided significant de-risking benefits for clean energy stocks until late 2021, especially during the early stages of the COVID-19 pandemic. This benefit declined sharply with the onset of the Russia-Ukraine conflict, due to rising inflationary pressures and increased geopolitical tensions. These results underscore the conditional and context-dependent nature of green bonds’ defensive attributes, which are effective under normal market conditions but falter during severe macroeconomic and geopolitical turmoil. Climate change concerns do not materially influence the de-risking properties of conventional bonds, suggesting that climate-related risks have limited impact on the co-movement between U.S. conventional equity and bond markets.