IDEAS home Printed from https://ideas.repec.org/a/eee/ecofin/v74y2024ics1062940824001839.html
   My bibliography  Save this article

Network measurement and influence mechanism of dynamic risk contagion among global stock markets: Based on time-varying spillover index and complex network method

Author

Listed:
  • Yu, Bo
  • Ouyang, Haiqin
  • Guan, Chao
  • Lin, Binzhao

Abstract

From a global and dynamic perspective, this paper conducts the network measurement of risk contagion among global stock markets by employing time-varying spillover index and complex network method. Furthermore, this paper investigates the influence mechanism of dynamic risk contagion, combining multiple factors such as financial opening, international trade, and cross-border capital flow. The results show that: (1) There exists a strong risk contagion effect among global stock markets, especially for developed countries, which have obvious time-varying characteristics in both direction and intensity. (2) The risk contagion effect is also highly event-dependent, which shows a rapid upward trend during extreme risk events such as the financial crisis and the COVID-19 epidemic. (3) Different economic and financial development situations lead to different risk contagion effects, and the ranking of countries with stronger risk effects remains at a stable level, which can prompt important risk events. (4) International trade, cross-border capital flow, financial market volatility, investor sentiment, and the US monetary policy are key influence mechanisms of dynamic risk contagion. However, financial opening and economic fundamentals are not statistically significant, which is contrary to our intuition.

Suggested Citation

  • Yu, Bo & Ouyang, Haiqin & Guan, Chao & Lin, Binzhao, 2024. "Network measurement and influence mechanism of dynamic risk contagion among global stock markets: Based on time-varying spillover index and complex network method," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    • Handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001839
    DOI: 10.1016/j.najef.2024.102258
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1062940824001839
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.najef.2024.102258?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Aghion, Philippe & Bolton, Patrick & Dewatripont, Mathias, 2000. "Contagious bank failures in a free banking system," European Economic Review, Elsevier, vol. 44(4-6), pages 713-718, May.
    2. Shikimi, Masayo & Yamada, Kazuo, 2019. "Trade and financial channels as the transmission mechanism of the financial crisis," International Review of Economics & Finance, Elsevier, vol. 63(C), pages 364-381.
    3. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    4. Mert Demirer & Francis X. Diebold & Laura Liu & Kamil Yilmaz, 2018. "Estimating global bank network connectedness," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 33(1), pages 1-15, January.
    5. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Systemic Risk and Stability in Financial Networks," American Economic Review, American Economic Association, vol. 105(2), pages 564-608, February.
    6. Brian H. Boyer & Tomomi Kumagai & Kathy Yuan, 2006. "How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices," Journal of Finance, American Finance Association, vol. 61(2), pages 957-1003, April.
    7. Korobilis, D & Yilmaz, K, 2018. "Measuring Dynamic Connectedness with Large Bayesian VAR Models," Essex Finance Centre Working Papers 20937, University of Essex, Essex Business School.
    8. Ricardo J. Caballero & Alp Simsek, 2020. "A Model of Fickle Capital Flows and Retrenchment," Journal of Political Economy, University of Chicago Press, vol. 128(6), pages 2288-2328.
    9. Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
    10. Apostolakis, George N. & Floros, Christos & Giannellis, Nikolaos, 2022. "On bank return and volatility spillovers: Identifying transmitters and receivers during crisis periods," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 156-176.
    11. Billio, Monica & Getmansky, Mila & Lo, Andrew W. & Pelizzon, Loriana, 2012. "Econometric measures of connectedness and systemic risk in the finance and insurance sectors," Journal of Financial Economics, Elsevier, vol. 104(3), pages 535-559.
    12. Zhang, Weiping & Zhuang, Xintian & Lu, Yang & Wang, Jian, 2020. "Spatial linkage of volatility spillovers and its explanation across G20 stock markets: A network framework," International Review of Financial Analysis, Elsevier, vol. 71(C).
    13. McLemore, Ping & Mihov, Atanas & Sanz, Leandro, 2022. "Global banks and systemic risk: The dark side of country financial connectedness," Journal of International Money and Finance, Elsevier, vol. 129(C).
    14. Broner, Fernando & Didier, Tatiana & Erce, Aitor & Schmukler, Sergio L., 2013. "Gross capital flows: Dynamics and crises," Journal of Monetary Economics, Elsevier, vol. 60(1), pages 113-133.
    15. Oliver Hart & Luigi Zingales, 2011. "A New Capital Regulation for Large Financial Institutions," American Law and Economics Review, American Law and Economics Association, vol. 13(2), pages 453-490.
    16. Zhang, Weiping & Zhuang, Xintian & Lu, Yang, 2020. "Spatial spillover effects and risk contagion around G20 stock markets based on volatility network," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    17. Chen, Cathy Yi-Hsuan & Härdle, Wolfgang Karl & Okhrin, Yarema, 2019. "Tail event driven networks of SIFIs," Journal of Econometrics, Elsevier, vol. 208(1), pages 282-298.
    18. Atish R Ghosh & Jonathan D Ostry & Mahvash S Qureshi, 2015. "Exchange Rate Management and Crisis Susceptibility: A Reassessment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(1), pages 238-276, May.
    19. Viral V. Acharya & Tanju Yorulmazer, 2008. "Information Contagion and Bank Herding," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(1), pages 215-231, February.
    20. Jianjun Miao & Pengfei Wang, 2018. "Asset Bubbles and Credit Constraints," American Economic Review, American Economic Association, vol. 108(9), pages 2590-2628, September.
    21. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
    22. Samet Gunay & Walid Bakry & Somar Al-Mohamad, 2021. "The Australian Stock Market’s Reaction to the First Wave of the COVID-19 Pandemic and Black Summer Bushfires: A Sectoral Analysis," JRFM, MDPI, vol. 14(4), pages 1-19, April.
    23. Apostolakis, George & Papadopoulos, Athanasios P., 2015. "Financial stress spillovers across the banking, securities and foreign exchange markets," Journal of Financial Stability, Elsevier, vol. 19(C), pages 1-21.
    24. Apostolakis, Georgios N. & Giannellis, Nikolaos & Papadopoulos, Athanasios P., 2019. "Financial stress and asymmetric shocks transmission within the Eurozone. How fragile is the common monetary policy?," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    25. Bostanci, Gorkem & Yilmaz, Kamil, 2020. "How connected is the global sovereign credit risk network?," Journal of Banking & Finance, Elsevier, vol. 113(C).
    26. Wang, Haiying & Yuan, Ying & Li, Yiou & Wang, Xunhong, 2021. "Financial contagion and contagion channels in the forex market: A new approach via the dynamic mixture copula-extreme value theory," Economic Modelling, Elsevier, vol. 94(C), pages 401-414.
    27. George Apostolakis & Athanasios P. Papadopoulos, 2019. "Financial Stability, Monetary Stability and Growth: a PVAR Analysis," Open Economies Review, Springer, vol. 30(1), pages 157-178, February.
    28. Bijlsma, Melle & Vermeulen, Robert, 2016. "Insurance companies’ trading behaviour during the European sovereign debt crisis: Flight home or flight to quality?," Journal of Financial Stability, Elsevier, vol. 27(C), pages 137-154.
    29. Apostolakis, George & Papadopoulos, Athanasios P., 2014. "Financial stress spillovers in advanced economies," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 128-149.
    30. Zhou, Xiangyi & Zhang, Weijin & Zhang, Jie, 2012. "Volatility spillovers between the Chinese and world equity markets," Pacific-Basin Finance Journal, Elsevier, vol. 20(2), pages 247-270.
    31. Fan, Haichao & Gou, Qin & Peng, Yuchao & Xie, Wenjing, 2020. "Spillover effects of capital controls on capital flows and financial risk contagion," Journal of International Money and Finance, Elsevier, vol. 105(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fernández-Rodríguez, Fernando & Gómez-Puig, Marta & Sosvilla-Rivero, Simón, 2016. "Using connectedness analysis to assess financial stress transmission in EMU sovereign bond market volatility," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 126-145.
    2. Chiang, Shu-hen & Chen, Chien-Fu, 2022. "From systematic to systemic risk among G7 members: Do the stock or real estate markets matter?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 79(C).
    3. Chowdhury, Biplob & Dungey, Mardi & Kangogo, Moses & Sayeed, Mohammad Abu & Volkov, Vladimir, 2019. "The changing network of financial market linkages: The Asian experience," International Review of Financial Analysis, Elsevier, vol. 64(C), pages 71-92.
    4. Feng, Yusen & Wang, Gang-Jin & Zhu, You & Xie, Chi, 2023. "Systemic risk spillovers and the determinants in the stock markets of the Belt and Road countries," Emerging Markets Review, Elsevier, vol. 55(C).
    5. Bernardi, Mauro & Costola, Michele, 2019. "High-dimensional sparse financial networks through a regularised regression model," SAFE Working Paper Series 244, Leibniz Institute for Financial Research SAFE.
    6. Julián Andrada-Félix & Adrian Fernandez-Perez & Simón Sosvilla-Rivero, 2018. "Fear connectedness among asset classes," Applied Economics, Taylor & Francis Journals, vol. 50(39), pages 4234-4249, August.
    7. Boyao Wu & Difang Huang & Muzi Chen, 2024. "Estimating Contagion Mechanism in Global Equity Market with Time-Zone Effect," Papers 2404.04335, arXiv.org.
    8. Greenwood-Nimmo, Matthew & Huang, Jingong & Nguyen, Viet Hoang, 2019. "Financial sector bailouts, sovereign bailouts, and the transfer of credit risk," Journal of Financial Markets, Elsevier, vol. 42(C), pages 121-142.
    9. Foglia, Matteo & Addi, Abdelhamid & Angelini, Eliana, 2022. "The Eurozone banking sector in the time of COVID-19: Measuring volatility connectedness," Global Finance Journal, Elsevier, vol. 51(C).
    10. Yang, Lu, 2023. "Oil price bubbles: The role of network centrality on idiosyncratic sovereign risk," Resources Policy, Elsevier, vol. 82(C).
    11. Mardi Dungey & John Harvey & Pierre Siklos & Vladimir Volkov, 2017. "Signed spillover effects building on historical decompositions," CAMA Working Papers 2017-52, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    12. Cesario Mateus & Miramir Bagirov & Irina Mateus, 2024. "Return and volatility connectedness and net directional patterns in spillover transmissions: East and Southeast Asian equity markets," International Review of Finance, International Review of Finance Ltd., vol. 24(1), pages 83-103, March.
    13. Vergote, Olivier, 2016. "Credit risk spillover between financials and sovereigns in the euro area during 2007-2015," Working Paper Series 1898, European Central Bank.
    14. Chen, Yan & Wang, Gang-Jin & Zhu, You & Xie, Chi & Uddin, Gazi Salah, 2023. "Quantile connectedness and the determinants between FinTech and traditional financial institutions: Evidence from China," Global Finance Journal, Elsevier, vol. 58(C).
    15. Shi, Huai-Long & Chen, Huayi, 2023. "Revisiting asset co-movement: Does network topology really matter?," Research in International Business and Finance, Elsevier, vol. 66(C).
    16. Wang, Kangsheng & Wen, Fenghua & Gong, Xu, 2024. "Oil prices and systemic financial risk: A complex network analysis," Energy, Elsevier, vol. 293(C).
    17. Shi, Huai-Long & Zhou, Wei-Xing, 2022. "Factor volatility spillover and its implications on factor premia," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    18. Zhang, Weiping & Zhuang, Xintian & Wang, Jian & Lu, Yang, 2020. "Connectedness and systemic risk spillovers analysis of Chinese sectors based on tail risk network," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    19. Irena Vodenska & Alexander P. Becker & Di Zhou & Dror Y. Kenett & H. Eugene Stanley & Shlomo Havlin, 2016. "Community Analysis of Global Financial Markets," Risks, MDPI, vol. 4(2), pages 1-15, May.
    20. Dai, Zhifeng & Tang, Rui & Zhang, Xinhua, 2023. "Multilayer network analysis for measuring the inter-connectedness between the oil market and G20 stock markets," Energy Economics, Elsevier, vol. 120(C).

    More about this item

    Keywords

    Global stock markets; Dynamic risk contagion; Time-varying spillover index; Complex network method; Influence mechanism;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecofin:v:74:y:2024:i:c:s1062940824001839. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620163 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.