This study extends the Diebold-Yilmaz Connectedness Index (DYCI) methodology and, based on forecast error covariance …, system-wide connectedness averages out the information embedded in the covariance matrix in aggregating pairwise directional … model is estimated for different shock sizes. It is shown, in contrast to the DYCI model, the dynamic quantile estimation of …

to construct a volatility connectedness index. We then estimate the contemporaneous return sensitivity of every non … firms with positive and negative exposures to financial connectedness. The four-factor alpha of a strategy that goes long in … the bottom decile and short in the top decile of stocks sorted on their connectedness betas is roughly 15% per annum …