IDEAS home Printed from https://ideas.repec.org/a/kap/apfinm/v31y2024i4d10.1007_s10690-023-09439-2.html
   My bibliography  Save this article

Dynamics of Contagion Risk Among World Markets in Times of Crises: A Financial Network Perspective

Author

Listed:
  • Karim Belcaid

    (Ministry of Economy and Finance
    Mohammed V University)

  • Sara El Aoufi

    (Ibn Tofail University)

  • Mamdouh Abdulaziz Saleh Al-Faryan

    (University of Portsmouth
    Consultant in Economics and Finance)

Abstract

This study used a Time-Varying Parameter VAR approach to analyze contagion risk among global stock markets and WTI crude oil during times of crisis. The examined markets included the United States, the Eurozone, the United Kingdom, China, Japan, India, Russia, and select MENA stock markets. The research highlighted the importance of dynamic metrics in assessing financial networks and crisis contagion risk, an area that has received limited attention in previous studies. The evidence demonstrates rapid and dynamic financial contagion resulting from lockdown measures, the spread of COVID-19, and the Russia–Ukraine war. The U.S. and major European markets were identified as net global contributors, while Chinese and MENA equity markets acted as net receivers. Furthermore, the origin of oil shocks was more likely attributed to Russian and Saudi markets. This research carries policy implications for policymakers and investors, emphasizing the importance of shock and contagion effects in portfolio diversification and risk hedging, particularly during times of crisis.

Suggested Citation

  • Karim Belcaid & Sara El Aoufi & Mamdouh Abdulaziz Saleh Al-Faryan, 2024. "Dynamics of Contagion Risk Among World Markets in Times of Crises: A Financial Network Perspective," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 31(4), pages 1007-1033, December.
    • Handle: RePEc:kap:apfinm:v:31:y:2024:i:4:d:10.1007_s10690-023-09439-2
    DOI: 10.1007/s10690-023-09439-2
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10690-023-09439-2
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10690-023-09439-2?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. Jozef Baruník & Evžen KoÄ enda b,a & Lukáš Vácha, 2016. "Volatility Spillovers Across Petroleum Markets," The Energy Journal, , vol. 37(1), pages 136-158, January.
    2. Fabio Caccioli & Paolo Barucca & Teruyoshi Kobayashi, 2018. "Network models of financial systemic risk: a review," Journal of Computational Social Science, Springer, vol. 1(1), pages 81-114, January.
    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. Jozef Baruník & Tomáš Křehlík, 2018. "Measuring the Frequency Dynamics of Financial Connectedness and Systemic Risk," Journal of Financial Econometrics, Oxford University Press, vol. 16(2), pages 271-296.
    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. Iwanicz-Drozdowska, Małgorzata & Rogowicz, Karol & Kurowski, Łukasz & Smaga, Paweł, 2021. "Two decades of contagion effect on stock markets: Which events are more contagious?," Journal of Financial Stability, Elsevier, vol. 55(C).
    7. Prasenjit Chakrabarti & Mohammad Shameem Jawed & Manish Sarkhel, 2021. "COVID-19 pandemic and global financial market interlinkages: a dynamic temporal network analysis," Applied Economics, Taylor & Francis Journals, vol. 53(25), pages 2930-2945, May.
    8. Apergis, Nicholas & Christou, Christina & Kynigakis, Iason, 2019. "Contagion across US and European financial markets: Evidence from the CDS markets," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 1-12.
    9. Tsuji, Chikashi, 2018. "New DCC analyses of return transmission, volatility spillovers, and optimal hedging among oil futures and oil equities in oil-producing countries," Applied Energy, Elsevier, vol. 229(C), pages 1202-1217.
    10. Jozef Barunk & Evzen KoÄ enda & Lukáš Váchaa, 2015. "Volatility Spillovers Across Petroleum Markets," The Energy Journal, , vol. 36(3), pages 309-330, July.
    11. Kenechukwu Anadu & Mathias Kruttli & Patrick McCabe & Emilio Osambela, 2020. "The Shift from Active to Passive Investing: Risks to Financial Stability?," Financial Analysts Journal, Taylor & Francis Journals, vol. 76(4), pages 23-39, October.
    12. Yan‐ran Ma & Qiang Ji & Jiaofeng Pan, 2019. "Oil financialization and volatility forecast: Evidence from multidimensional predictors," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 38(6), pages 564-581, September.
    13. Balcilar, Mehmet & Elsayed, Ahmed H. & Hammoudeh, Shawkat, 2023. "Financial connectedness and risk transmission among MENA countries: Evidence from connectedness network and clustering analysis1," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 82(C).
    14. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
    15. Costola, Michele & Lorusso, Marco, 2022. "Spillovers among energy commodities and the Russian stock market," Journal of Commodity Markets, Elsevier, vol. 28(C).
    16. Ioannis Chatziantoniou & David Gabauer & Rangan Gupta, 2021. "Integration and Risk Transmission in the Market for Crude Oil: A Time-Varying Parameter Frequency Connectedness Approach," Working Papers 202147, University of Pretoria, Department of Economics.
    17. Thomas S. Y. Ho & Miguel Palacios & Hans R. Stoll, 2013. "Dynamic Financial System: Complexity, Fragility and Regulatory Principles," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 22(1), pages 1-42, February.
    18. Neaime, Simon, 2016. "Financial crises and contagion vulnerability of MENA stock markets," Emerging Markets Review, Elsevier, vol. 27(C), pages 14-35.
    19. 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.
    20. Altınkeski, Buket Kırcı & Cevik, Emrah Ismail & Dibooglu, Sel & Kutan, Ali M., 2022. "Financial stress transmission between the U.S. and the Euro Area," Journal of Financial Stability, Elsevier, vol. 60(C).
    21. Yousaf, Imran & Patel, Ritesh & Yarovaya, Larisa, 2022. "The reaction of G20+ stock markets to the Russia–Ukraine conflict “black-swan” event: Evidence from event study approach," Journal of Behavioral and Experimental Finance, Elsevier, vol. 35(C).
    22. Nikolaos Antonakakis & Ioannis Chatziantoniou & David Gabauer, 2020. "Refined Measures of Dynamic Connectedness based on Time-Varying Parameter Vector Autoregressions," JRFM, MDPI, vol. 13(4), pages 1-23, April.
    23. Iana Liadze & Patricia Sanchez Juanino & Paul Mortimer-Lee & Corrado Macchiarelli, 2022. "The Economic Costs of the Russia-Ukraine Conflict," National Institute of Economic and Social Research (NIESR) Policy Papers 32, National Institute of Economic and Social Research.
    24. Karim Belcaid, 2022. "Economic growth and sustainability of public finances: evidence from Morocco," Middle East Development Journal, Taylor & Francis Journals, vol. 14(2), pages 240-263, July.
    25. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-248, April.
    26. Ahmed Alhodiry & Husam Rjoub & Ahmed Samour, 2021. "Impact of oil prices, the U.S interest rates on Turkey’s real estate market. New evidence from combined co-integration and bootstrap ARDL tests," PLOS ONE, Public Library of Science, vol. 16(1), pages 1-16, January.
    27. Karim Belcaid & Ahmed El Ghini, 2019. "Spillover Effects among European, the US and Moroccan Stock Markets before and after the Global Financial Crisis," Journal of African Business, Taylor & Francis Journals, vol. 20(4), pages 525-548, October.
    28. Yadong Luo, 2022. "New connectivity in the fragmented world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 53(5), pages 962-980, July.
    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. Hoque, Mohammad Enamul & Soo-Wah, Low & Billah, Mabruk, 2023. "Time-frequency connectedness and spillover among carbon, climate, and energy futures: Determinants and portfolio risk management implications," Energy Economics, Elsevier, vol. 127(PB).
    2. Hoque, Mohammad Enamul & Soo-Wah, Low & Tiwari, Aviral Kumar & Akhter, Tahmina, 2023. "Time and frequency domain connectedness and spillover among categorical and regional financial stress, gold and bitcoin market," Resources Policy, Elsevier, vol. 85(PA).
    3. Kočenda, Evžen & Moravcová, Michala, 2024. "Frequency volatility connectedness and portfolio hedging of U.S. energy commodities," Research in International Business and Finance, Elsevier, vol. 69(C).
    4. Xu Zhang & Xian Yang & Jianping Li & Jun Hao, 2023. "Contemporaneous and noncontemporaneous idiosyncratic risk spillovers in commodity futures markets: A novel network topology approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(6), pages 705-733, June.
    5. Gabauer, David & Chatziantoniou, Ioannis & Stenfors, Alexis, 2023. "Model-free connectedness measures," Finance Research Letters, Elsevier, vol. 54(C).
    6. Cagli, Efe Caglar, 2023. "The volatility spillover between battery metals and future mobility stocks: Evidence from the time-varying frequency connectedness approach," Resources Policy, Elsevier, vol. 86(PA).
    7. Huang, Jionghao & Chen, Baifan & Xu, Yushi & Xia, Xiaohua, 2023. "Time-frequency volatility transmission among energy commodities and financial markets during the COVID-19 pandemic: A Novel TVP-VAR frequency connectedness approach," Finance Research Letters, Elsevier, vol. 53(C).
    8. Albrecht, Peter & Kočenda, Evžen, 2024. "Volatility connectedness on the central European forex markets," International Review of Financial Analysis, Elsevier, vol. 93(C).
    9. Abakah, Emmanuel Joel Aikins & Brahim, Mariem & Carlotti, Jean-Etienne & Tiwari, Aviral Kumar & Mensi, Walid, 2024. "Extreme downside risk connectedness and portfolio hedging among the G10 currencies," International Economics, Elsevier, vol. 178(C).
    10. Stenfors, Alexis & Chatziantoniou, Ioannis & Gabauer, David, 2022. "Independent policy, dependent outcomes: A game of cross-country dominoes across European yield curves," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    11. Hu, Yang & Lang, Chunlin & Corbet, Shaen & Wang, Junchuan, 2024. "The impact of COVID-19 on the volatility connectedness of the Chinese tourism sector," Research in International Business and Finance, Elsevier, vol. 68(C).
    12. Cui, Jinxin & Maghyereh, Aktham, 2023. "Higher-order moment risk connectedness and optimal investment strategies between international oil and commodity futures markets: Insights from the COVID-19 pandemic and Russia-Ukraine conflict," International Review of Financial Analysis, Elsevier, vol. 86(C).
    13. Mensi, Walid & Vo, Xuan Vinh & Kang, Sang Hoon, 2023. "Quantile spillovers and connectedness analysis between oil and African stock markets," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 60-83.
    14. Al-Nassar, Nassar S. & Assaf, Rima & Chaibi, Anis & Makram, Beljid, 2024. "The nexus between mineral, renewable commodities, and regional stock sectors during health and military crises," Resources Policy, Elsevier, vol. 96(C).
    15. Zhang, Yan & Xu, Yushi & Zhu, Xintong & Huang, Jionghao, 2024. "Coal price shock propagation through sectoral financial interconnectedness in China's stock market: Quantile coherency network modelling and shock decomposition analysis," Journal of Commodity Markets, Elsevier, vol. 34(C).
    16. Bhattacherjee, Purba & Mishra, Sibanjan & Kang, Sang Hoon, 2024. "Extreme time-frequency connectedness across U.S. sector stock and commodity futures markets," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 1176-1197.
    17. Cheng, Zishu & Li, Mingchen & Cui, Ruhong & Wei, Yunjie & Wang, Shouyang & Hong, Yongmiao, 2024. "The impact of COVID-19 on global financial markets: A multiscale volatility spillover analysis," International Review of Financial Analysis, Elsevier, vol. 95(PB).
    18. Elsayed, Ahmed H. & Hammoudeh, Shawkat & Sousa, Ricardo M., 2021. "Inflation synchronization among the G7and China: The important role of oil inflation," Energy Economics, Elsevier, vol. 100(C).
    19. Hoque, Mohammad Enamul & Sahabuddin, Mohammad & Bilgili, Faik, 2024. "Volatility interconnectedness among financial and geopolitical markets: Evidence from COVID-19 and Ukraine-Russia crises," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 303-320.
    20. Biswas, Priti & Jain, Prachi & Maitra, Debasish, 2024. "Are shocks in the stock markets driven by commodity markets? Evidence from Russia-Ukraine war," Journal of Commodity Markets, Elsevier, vol. 34(C).

    More about this item

    Keywords

    Contagion risk; Global financial network; Major world markets; WTI oil index; COVID-19; Ukraine–Russia crisis;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    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:kap:apfinm:v:31:y:2024:i:4:d:10.1007_s10690-023-09439-2. 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: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    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.