IDEAS home Printed from https://ideas.repec.org/a/eee/finana/v96y2024ipbs1057521924006446.html
   My bibliography  Save this article

Tail risk spillovers in the stock and forex markets at the major emergencies: Evidence from the G20 countries

Author

Listed:
  • Li, Kelong
  • Xie, Chi
  • Ouyang, Yingbo
  • Mo, Tingcheng
  • Feng, Yusen

Abstract

We explore the tail risk spillover in the stock and foreign exchange (forex) markets along the G20 countries based on the tail-event driven network (TENET) method. To effectively capture the risk spillover mechanism from the tail-dependence perspective, we analyze the network connectedness in four aspects (namely system, market, region, and country) and explore it at the major emergencies. We find that (i) the system-level risk spillover peaks at the US subprime crisis, and subsequently undergoes several cyclical volatility in relatively high level in the period of major emergencies; (ii) the cross-market risk spillover from the stock markets to the forex markets plays a dominant role, while that from the forex markets to the stock markets is small; and (iii) the stock and forex markets in Europe and America transmit the large tail risk spillovers to other regions, and the forex markets in these regions are sensitive to the major emergencies.

Suggested Citation

  • Li, Kelong & Xie, Chi & Ouyang, Yingbo & Mo, Tingcheng & Feng, Yusen, 2024. "Tail risk spillovers in the stock and forex markets at the major emergencies: Evidence from the G20 countries," International Review of Financial Analysis, Elsevier, vol. 96(PB).
  • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006446
    DOI: 10.1016/j.irfa.2024.103712
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1057521924006446
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.irfa.2024.103712?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. Härdle, Wolfgang Karl & Wang, Weining & Yu, Lining, 2016. "TENET: Tail-Event driven NETwork risk," Journal of Econometrics, Elsevier, vol. 192(2), pages 499-513.
    2. Na Hao & Peter Pedroni & Gregory Colson & Michael Wetzstein, 2017. "The linkage between the U.S. ethanol market and developing countries’ maize prices: a panel SVAR analysis," Agricultural Economics, International Association of Agricultural Economists, vol. 48(5), pages 629-638, September.
    3. Zhou, Wei-Xing & Dai, Yun-Shi & Duong, Kiet Tuan & Dai, Peng-Fei, 2024. "The impact of the Russia-Ukraine conflict on the extreme risk spillovers between agricultural futures and spots," Journal of Economic Behavior & Organization, Elsevier, vol. 217(C), pages 91-111.
    4. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    5. Kumar, Satish & Tiwari, Aviral Kumar & Chauhan, Yogesh & Ji, Qiang, 2019. "Dependence structure between the BRICS foreign exchange and stock markets using the dependence-switching copula approach," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 273-284.
    6. Chuangxia Huang & Xian Zhao & Renli Su & Xiaoguang Yang & Xin Yang, 2022. "Dynamic network topology and market performance: A case of the Chinese stock market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1962-1978, April.
    7. 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.
    8. Zheng, Yanting & Luan, Xin & Lu, Xin & Liu, Jiaming, 2023. "A new view of risk contagion by decomposition of dependence structure: Empirical analysis of Sino-US stock markets," International Review of Financial Analysis, Elsevier, vol. 90(C).
    9. Li, Xiao-Ming & Peng, Lu, 2017. "US economic policy uncertainty and co-movements between Chinese and US stock markets," Economic Modelling, Elsevier, vol. 61(C), pages 27-39.
    10. Wan, Jieru & Yin, Libo & Wu, You, 2024. "Return and volatility connectedness across global ESG stock indexes: Evidence from the time-frequency domain analysis," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 397-428.
    11. Malik, Farooq & Umar, Zaghum, 2019. "Dynamic connectedness of oil price shocks and exchange rates," Energy Economics, Elsevier, vol. 84(C).
    12. Badshah, Ihsan & Demirer, Riza & Suleman, Muhammad Tahir, 2019. "The effect of economic policy uncertainty on stock-commodity correlations and its implications on optimal hedging," Energy Economics, Elsevier, vol. 84(C).
    13. İrfan Civcir & Uğur Akkoç, 2021. "Dynamic volatility linkages and hedging between commodities and sectoral stock returns in Turkey: Evidence from SVAR‐cDCC‐GARCH model," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 1978-1992, April.
    14. 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).
    15. Dai, Yun-Shi & Dai, Peng-Fei & Zhou, Wei-Xing, 2023. "Tail dependence structure and extreme risk spillover effects between the international agricultural futures and spot markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 88(C).
    16. Cao, Guangxi & Zhang, Minjia & Li, Qingchen, 2017. "Volatility-constrained multifractal detrended cross-correlation analysis: Cross-correlation among Mainland China, US, and Hong Kong stock markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 472(C), pages 67-76.
    17. Laeven, Luc & Ratnovski, Lev & Tong, Hui, 2016. "Bank size, capital, and systemic risk: Some international evidence," Journal of Banking & Finance, Elsevier, vol. 69(S1), pages 25-34.
    18. Chuangxia Huang & Yunke Deng & Xin Yang & Xiaoguang Yang & Jinde Cao, 2023. "Can financial crisis be detected? Laplacian energy measure," The European Journal of Finance, Taylor & Francis Journals, vol. 29(9), pages 949-976, June.
    19. Oussama Tilfani & Paulo Ferreira & My Youssef El Boukfaoui, 2021. "Dynamic cross-correlation and dynamic contagion of stock markets: a sliding windows approach with the DCCA correlation coefficient," Empirical Economics, Springer, vol. 60(3), pages 1127-1156, March.
    20. Boldanov, Rustam & Degiannakis, Stavros & Filis, George, 2016. "Time-varying correlation between oil and stock market volatilities: Evidence from oil-importing and oil-exporting countries," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 209-220.
    21. Boako, Gideon & Alagidede, Paul, 2017. "Currency price risk and stock market returns in Africa: Dependence and downside spillover effects with stochastic copulas," Journal of Multinational Financial Management, Elsevier, vol. 41(C), pages 92-114.
    22. Nikolaus Hautsch & Julia Schaumburg & Melanie Schienle, 2015. "Financial Network Systemic Risk Contributions," Review of Finance, European Finance Association, vol. 19(2), pages 685-738.
    23. Ping Zhang & Lin Zhang & Zhenghui Meng & Tewei Wang & Francisco R. Villatoro, 2021. "Dynamic Spillover Effects of Investor Sentiment and Return between China and the United States," Discrete Dynamics in Nature and Society, Hindawi, vol. 2021, pages 1-19, August.
    24. Shi, Yujie & Wang, Liming & Ke, Jian, 2021. "Does the US-China trade war affect co-movements between US and Chinese stock markets?," Research in International Business and Finance, Elsevier, vol. 58(C).
    25. Gil-Alana, Luis Alberiko & Abakah, Emmanuel Joel Aikins & Rojo, María Fátima Romero, 2020. "Cryptocurrencies and stock market indices. Are they related?," Research in International Business and Finance, Elsevier, vol. 51(C).
    26. Elsayed, Ahmed H. & Nasreen, Samia & Tiwari, Aviral Kumar, 2020. "Time-varying co-movements between energy market and global financial markets: Implication for portfolio diversification and hedging strategies," Energy Economics, Elsevier, vol. 90(C).
    27. Liu, Li & Wan, Jieqiu, 2011. "A study of correlations between crude oil spot and futures markets: A rolling sample test," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(21), pages 3754-3766.
    28. Yan Yu & Yi-Tsung Lee, 2023. "Spillover Effects of Preventive Regulation and Corporate R&D Investment Catering: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(11), pages 3391-3401, September.
    29. Warshaw, Evan, 2020. "Asymmetric volatility spillover between European equity and foreign exchange markets: Evidence from the frequency domain," International Review of Economics & Finance, Elsevier, vol. 68(C), pages 1-14.
    30. Xin Yang & Shan Chen & Hong Liu & Xiaoguang Yang & Chuangxia Huang, 2023. "Jump volatility spillover network based measurement of systemic importance of Chinese financial institutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1201-1213, April.
    31. Kang, Sang Hoon & McIver, Ron & Yoon, Seong-Min, 2017. "Dynamic spillover effects among crude oil, precious metal, and agricultural commodity futures markets," Energy Economics, Elsevier, vol. 62(C), pages 19-32.
    32. Zhang, Dayong, 2017. "Oil shocks and stock markets revisited: Measuring connectedness from a global perspective," Energy Economics, Elsevier, vol. 62(C), pages 323-333.
    33. Reboredo, Juan Carlos & Ugolini, Andrea & Hernandez, Jose Arreola, 2021. "Dynamic spillovers and network structure among commodity, currency, and stock markets," Resources Policy, Elsevier, vol. 74(C).
    34. Gang-Jin Wang & Chi Xie & Kaijian He & H. Eugene Stanley, 2017. "Extreme risk spillover network: application to financial institutions," Quantitative Finance, Taylor & Francis Journals, vol. 17(9), pages 1417-1433, September.
    35. Maghyereh, Aktham I. & Awartani, Basel & Bouri, Elie, 2016. "The directional volatility connectedness between crude oil and equity markets: New evidence from implied volatility indexes," Energy Economics, Elsevier, vol. 57(C), pages 78-93.
    36. Li, Jianxuan & Shi, Yingying & Cao, Guangxi, 2018. "Topology structure based on detrended cross-correlation coefficient of exchange rate network of the belt and road countries," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 509(C), pages 1140-1151.
    37. Huang, Chuangxia & Deng, Yunke & Yang, Xiaoguang & Cao, Jinde & Yang, Xin, 2021. "A network perspective of comovement and structural change: Evidence from the Chinese stock market," International Review of Financial Analysis, Elsevier, vol. 76(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. Wang, Gang-Jin & Wan, Li & Feng, Yusen & Xie, Chi & Uddin, Gazi Salah & Zhu, You, 2023. "Interconnected multilayer networks: Quantifying connectedness among global stock and foreign exchange markets," International Review of Financial Analysis, Elsevier, vol. 86(C).
    2. Wen, Tiange & Wang, Gang-Jin, 2020. "Volatility connectedness in global foreign exchange markets," Journal of Multinational Financial Management, Elsevier, vol. 54(C).
    3. 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).
    4. Wang, Gang-Jin & Chen, Yang-Yang & Si, Hui-Bin & Xie, Chi & Chevallier, Julien, 2021. "Multilayer information spillover networks analysis of China’s financial institutions based on variance decompositions," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 325-347.
    5. 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).
    6. Su, Zhi & Xu, Fuwei, 2021. "Dynamic identification of systemically important financial markets in the spread of contagion: A ripple network based collective spillover effect approach," Journal of Multinational Financial Management, Elsevier, vol. 60(C).
    7. Dai, Zhifeng & Zhu, Haoyang, 2023. "Dynamic risk spillover among crude oil, economic policy uncertainty and Chinese financial sectors," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 421-450.
    8. Foglia, Matteo & Addi, Abdelhamid & Wang, Gang-Jin & Angelini, Eliana, 2022. "Bearish Vs Bullish risk network: A Eurozone financial system analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    9. Liu, Bing-Yue & Fan, Ying & Ji, Qiang & Hussain, Nazim, 2022. "High-dimensional CoVaR network connectedness for measuring conditional financial contagion and risk spillovers from oil markets to the G20 stock system," Energy Economics, Elsevier, vol. 105(C).
    10. 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).
    11. 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).
    12. Dai, Zhifeng & Tang, Rui & Zhang, Xiaotong, 2023. "A new multilayer network for measuring interconnectedness among the energy firms," Energy Economics, Elsevier, vol. 124(C).
    13. 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).
    14. Lavín, Jaime F. & Valle, Mauricio A. & Magner, Nicolás S., 2024. "Stock market pattern recognition using symbol entropy analysis," The North American Journal of Economics and Finance, Elsevier, vol. 73(C).
    15. Jiang, Cuixia & Li, Yuqian & Xu, Qifa & Liu, Yezheng, 2021. "Measuring risk spillovers from multiple developed stock markets to China: A vine-copula-GARCH-MIDAS model," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 386-398.
    16. Wang, Gang-Jin & Si, Hui-Bin & Chen, Yang-Yang & Xie, Chi & Chevallier, Julien, 2021. "Time domain and frequency domain Granger causality networks: Application to China’s financial institutions," Finance Research Letters, Elsevier, vol. 39(C).
    17. Wang, Gang-Jin & Chen, Yan & Zhu, You & Xie, Chi, 2024. "Systemic risk prediction using machine learning: Does network connectedness help prediction?," International Review of Financial Analysis, Elsevier, vol. 93(C).
    18. Balcilar, Mehmet & Gabauer, David & Umar, Zaghum, 2021. "Crude Oil futures contracts and commodity markets: New evidence from a TVP-VAR extended joint connectedness approach," Resources Policy, Elsevier, vol. 73(C).
    19. Wang, Gang-Jin & Xie, Chi & Zhao, Longfeng & Jiang, Zhi-Qiang, 2018. "Volatility connectedness in the Chinese banking system: Do state-owned commercial banks contribute more?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 205-230.
    20. Liu, Zixin & Hu, Jun & Zhang, Shuguang & He, Zhipeng, 2024. "Risk spillovers among oil, gold, stock, and foreign exchange markets: Evidence from G20 economies," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).

    More about this item

    Keywords

    Tail risk spillovers; Connectedness; G20 countries; Stock and forex markets; Tail-event driven network (TENET);
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    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:finana:v:96:y:2024:i:pb:s1057521924006446. 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/620166 .

    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.