Contagion effect of systemic risk among industry sectors in China’s stock market |
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| Institution: | 1. School of Business, University of Leicester, University Road, Leicester LE1 7RH, UK;2. Business School, University of Nottingham, Jubilee Campus, Nottingham NG8 1BB, UK;1. Chair of Behavioral Finance, WHU - Otto Beisheim School of Management, Burgplatz 2, Vallendar D-56179, Germany;2. School of Banking, University of Economics Ho Chi Minh City, Vietnam;3. Department of Economics, “G.d’Annunzio” University of Chieti-Pescara, Viale Pindaro 42, 65127, PE, Italy;4. Chair of Finance and Eminent Scholar, Old Dominion University, Virginia, USA;5. Cambridge Judge Business School, University of Cambridge, UK |
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| Abstract: | This paper constructs a tail event driven network to investigate the interdependence of tail risks among industries in the Chinese stock market from 2014 to 2019, and identifies systemically important industries that have made significant contributions to risk contagion by systemic risk decomposition technique. The empirical results suggest strong linkages among industry sectors. The risk profiles of certain industries under close supply–demand relationships are positively correlated, whereas the financial industry, particularly banking, proves to be the principal risk diversifier in the network, with the household appliance, food and drink industries performing likewise an important role in risk diversification. Based on the TENQR model, further study on additional information provided by the industrial chain structure demonstrates that the upstream industry dominates the spread of risks under extreme market conditions. Our findings are of constructive significance to the anticipative introduction of corresponding policies by regulatory authorities, and are also instructive to the investors’ allocation of assets. |
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| Keywords: | Industry sectors CoES Systemic risk Network analysis Risk contagion Industrial chain |
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