Asymmetric causality and dynamic spillovers between biodiversity index and US equity sectors

This paper employs an empirical framework that combines the quantile-on-quantile Granger causality test with the TVP-VAR connectedness model to systematically examine the quantile impact and spillover effects of the S&P 500 Biodiversity Index (USBIO) on US stock sector returns. The QQGC analysis reveals that USBIO exhibits widespread yet heterogeneous forecasting capability across sectors, displaying pronounced quantile dependence and asymmetric characteristics. When biodiversity assets are positioned at lower levels, they demonstrate strong forecasting functionality for markets during boom periods. The TVP-VAR connectedness analysis further confirms that USBIO serves as a significant net spillover transmitter within the system. The total connectedness index of 82.04% indicates that biodiversity factors have become deeply embedded in the systematic pricing structure of equity markets, particularly exhibiting strong directional spillover effects towards information technology, telecommunication services, and consumer discretionary sectors. The time-varying analysis reveals that system connectedness surged during COVID-19 and has maintained structurally elevated levels in the post-COVID-19 era, whilst technology sector exposure to USBIO has intensified consistently since 2022. Our research provides time-varying signals for sector rotation in portfolio management.