Research on stock volatility risk and investor sentiment contagion from the perspective of multi-layer dynamic network

Xiao-Li Gong, Jian-Min Liu, Xiong Xiong and Wei Zhang

International Review of Financial Analysis, 2022, vol. 84, issue C

Abstract: In the post-epidemic period, the international economic structure has been readjusted, with risks contagious across financial and economic systems. This paper primarily uses the high-frequency TENET network and the Granger-causality network to describe the interconnectedness between the tail risk of stock volatility and investor sentiment, then the two-layer network is constructed by the generalized variance decomposition method to examine the inter-layer connectedness. Based on the two-layer network, the heterogeneity frequency response of network connectedness and dynamic network structure are further analyzed from the perspective of frequency domain. The study found that the tail risk of high-frequency stock volatility displays industry heterogeneity and time-varying property, and investor sentiment contagion network provides information transmission medium for stock risk. The double-layer network study found that stock volatility in consumer goods industry exhibits higher risk spillover to investor sentiment. The diversified financial industry, real estate industry and energy industry in the two-layer network are systemically important industries. In addition, the study of the frequency domain dynamic network found that the connectedness volatility in the short-term risk network of stock volatility was significantly higher than that of the investor sentiment network, and the short-term risk spillover effect of the network played a leading role in the total risk spillover. The research conclusions provide reference for preventing systemic risks from the perspective of systemically important industries and cyclical fluctuations.

Keywords: High-frequency volatility risk; Investor sentiment; Double-layer network; Frequency domain dynamic network (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105752192200309X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:84:y:2022:i:c:s105752192200309x

DOI: 10.1016/j.irfa.2022.102359

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().