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Inter-industry risk spillover, role reversal, and economic stability

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  • Zhu, Zongyuan
  • Luo, Qingtian

Abstract

This study employs a DY spillover index based on the time-varying parametric vector autoregressive (TVP-VAR) model to analyze inter-industry risk spillover, identify intertemporal reversals of industry risk roles, and test the stability of Chinese economic networks. Our results indicate that China's industries can be divided into three types: risk absorption, risk amplification, and risk adjustment. The risk spillover direction of the adjustment industry reverses with the change in economic conditions. Systemic risks arise from both the financial and non-financial sectors. Economic networks can remain stable at different times if risk-absorbing industries have advantages over risk-intensive industries.

Suggested Citation

  • Zhu, Zongyuan & Luo, Qingtian, 2023. "Inter-industry risk spillover, role reversal, and economic stability," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323006189
    DOI: 10.1016/j.frl.2023.104246
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    More about this item

    Keywords

    Risk spillover; TVP-VAR model; Complex network; Economic stability;
    All these keywords.

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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