A new view of risk contagion by decomposition of dependence structure: Empirical analysis of Sino-US stock markets

Yanting Zheng, Xin Luan, Xin Lu and Jiaming Liu

International Review of Financial Analysis, 2023, vol. 90, issue C

Abstract: With the fragile recovery of world economy and increasing financial uncertainty, global capital allocations and risk management become more sensitive to the risk spillover and contagion among financial markets, especially in extreme conditions. We propose a new view to detect risk contagion by the local comonotonicity and counter-monotonicity decomposed from dependence structure. It allows us to distinguish risk spillover, portfolio diversification risk, mild, moderate and severe contagions in the uniform framework. We apply it to analyze the identifications and degrees of risk contagion between Sino-US stock markets, and then find that they experience higher frequencies of portfolio diversification risk and moderate contagions while fewer proportions of mild and severe contagions. Impact factors from United States play the main role in increasing the odd ratio of risk spillover and moderate contagion between Sino-US stock markets. Our results can help global investors to develop sophisticated risk strategies by revealing structure information of dependence.

Keywords: Risk contagion; Dependence structure; Patched Bivariate Fréchet copula; Comonotonicity (search for similar items in EconPapers)
JEL-codes: C58 G11 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521923004362
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:90:y:2023:i:c:s1057521923004362

DOI: 10.1016/j.irfa.2023.102920

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 ().