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Sectoral spillovers and systemic risks: Evidence from China

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  • Li, Yueshan
  • Chen, Shoudong
  • Goodell, John W.
  • Yue, Dianmin
  • Liu, Xutang

Abstract

The recent collapse of Silicon Valley Bank prompts interest in how risks are assessed. We develop a new approach to estimating the systemic importance of sectors, integrating a ‘top-down’ and ‘bottom-up’ informed spillover network through component-expected-shortfall and generalized-error-variance-decomposition methodologies. This approach identifies systemically important sectors by combining too interconnected to fail and too big to fail logics. We find that levels of risk spillovers in respective sectors are not typically well correlated with corresponding levels of risk contribution. Consequently, focusing only on connectedness between assets seriously distorts risk estimation. Results are significant for regulatory authorities to accurately identify sector risks.

Suggested Citation

  • Li, Yueshan & Chen, Shoudong & Goodell, John W. & Yue, Dianmin & Liu, Xutang, 2023. "Sectoral spillovers and systemic risks: Evidence from China," Finance Research Letters, Elsevier, vol. 55(PB).
    • Handle: RePEc:eee:finlet:v:55:y:2023:i:pb:s1544612323003902
    DOI: 10.1016/j.frl.2023.104018
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    References listed on IDEAS

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    1. Gunay, Samet & Altınkeski, Buket Kırcı & Ismail Çevik, Emrah & Goodell, John W., 2023. "Quantifying systemic risk in the cryptocurrency market: A sectoral analysis," Finance Research Letters, Elsevier, vol. 58(PC).
    2. Guo, Songlin & Sun, Weilu & Xi, Yue & Zhang, Bijia, 2024. "Governance network externality: Exploring systemic risk generation mechanisms," Research in International Business and Finance, Elsevier, vol. 70(PA).

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    More about this item

    Keywords

    Spillovers; Systemically important sectors; Risk spillovers;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises

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