Multiscale financial risk contagion between international stock markets: Evidence from EMD-Copula-CoVaR analysis

Changqing Luo, Lan Liu and Da Wang

The North American Journal of Economics and Finance, 2021, vol. 58, issue C

Abstract: Considering the frequency domain and nonlinear characteristics of financial risks, we measure the multiscale financial risk contagion by constructing EMD-Copula-CoVaR models. Using a sample composed of nine international stock markets from January 4, 1999, to May 13, 2021, the empirical study reveals that: (1) EMD-Copula-CoVaR models can effectively measure the multiscale financial risk contagion, and the financial risk contagion is significant at all time scales; (2) The high-frequency component is the major contributor of financial risk contagion; meanwhile, the low-frequency component is the smallest among all time scale components; (3) The risk export of the US financial market to other markets, except the UK under the original and medium-frequency component, is higher than that it receives; and (4) Even though the magnitude of overall financial risk contagion is similar for the COVID-19 pandemic, Subprime Crises, 9/11 terrorist attack and other crises, the relative importance of different frequency components is heterogeneous. Therefore, the countermeasures of risk contagion should be designed according to its multiscale characteristics.

Keywords: Multiscale financial risk; Conditional Value-at-Risk; Risk contagion; Empirical mode decomposition; Dynamic Copula models (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:58:y:2021:i:c:s1062940821001303

DOI: 10.1016/j.najef.2021.101512

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