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Spatial pricing with multiple risk transmission channels and specific factors

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  • Chen, Na
  • Jin, Xiu
  • Zhuang, Xintian
  • Yuan, Ying

Abstract

This study synthesizes interactions among real link and informational risk transmission channels to construct a spatial weight matrix and considers the effects of specific factors on returns through such interactions. We propose a spatial pricing model with multiple risk transmission channels and specific factors. The empirical results of an application of the spatial pricing model to industry assets in the Chinese stock market show that (1) the interaction plays a significant role in explaining asset return. The multiple risk transmission channels based spatial weight matrix improves the performance of the spatial pricing model, and specific factors further improve the performance; (2) the feedback effects and indirect effects of specific factors indicate the importance of interaction and specific factors in the pricing model; and (3) the spatial pricing models are asymmetric in different regimes.

Suggested Citation

  • Chen, Na & Jin, Xiu & Zhuang, Xintian & Yuan, Ying, 2020. "Spatial pricing with multiple risk transmission channels and specific factors," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    • Handle: RePEc:eee:phsmap:v:549:y:2020:i:c:s0378437119321636
    DOI: 10.1016/j.physa.2019.123897
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