This study examines asymmetric spillovers among U. S. sector stocks, the Islamic stock index, conventional bonds, green bonds, and commodity markets. Using the TVP-VAR connectedness approach, we decompose total connectedness into positive and negative spillovers to capture asymmetric market dynamics. We find that negative shocks generate stronger spillovers than positive shocks, highlighting heightened systemic risks during market downturns. Market connectedness fluctuates over time, peaking during periods of financial distress such as the COVID-19 pandemic and geopolitical crises. Our findings reveal that the Islamic Stock Index plays a key role as a transmitter of shocks, reflecting its increasing integration into global financial markets. We construct optimal portfolios using the minimum connectedness approach and compare their performance with minimum variance and minimum correlation portfolios. Results indicate that the minimum connectedness portfolio delivers superior risk-adjusted returns, demonstrating its effectiveness in mitigating systemic risk and enhancing portfolio resilience. These insights offer practical guidance for investors seeking volatility protection through risk-sensitive asset allocation and inform policymakers designing macroprudential tools to monitor and manage systemic transmission across key financial sectors.
Mensi et al. (2026) studied this question.