Liquidity Connectedness Among Major Financial Asset Classes: Do Uncertainty Factors Matter?

This paper aims to examine the liquidity connectedness between major asset classes, including cryptocurrencies, oil, gold, stocks, and bonds, over the period from September 2014 to November 2022. Results from the time-varying parameter vector autoregression (TVP-VAR) show that the liquidity connectedness between the examined asset classes is generally low, with Bitcoin being the main transmitter of liquidity shocks while oil and bonds act as net receivers. Next, we employ the biwavelet analysis to investigate the co-movement between the liquidity connectedness index (TCI) and various uncertainty factors. Our findings suggest a weak correlation between the TCI and uncertainty factors, and especially no significant correlation between the TCI and geopolitical risk. However, some notable correlation still appears during the 2014–2015 and 2018–2021 periods. During the former period, the TCI plays the leading role, whereas during the latter period it is affected by various risk factors.