Extreme risk transmission channels between the stock index futures and spot markets: Evidence from China

Zhihong Jian, Xupei Li and Zhican Zhu

The North American Journal of Economics and Finance, 2022, vol. 59, issue C

Abstract: We develop a skewness-dependent multivariate conditional autoregressive value at risk model (SDMV-CAViaR) to detect the extreme risk transmission channels between the Chinese stock index futures and spot markets. The proposed SDMV-CAViaR model improves the forecast performance of extreme risk by introducing the high-frequency realized skewness. Specifically, the realized skewness has a significant impact on the spillovers, but the realized volatility and realized kurtosis do not, which implies that the jump component plays an important role in extreme risk spillovers. The empirical results indicate there are bidirectional extreme risk spillovers between the stock index futures and spot markets, the decline of one market has direct and indirect channels to exacerbate the extreme risk of the other market. Firstly, the market decline will directly increase the extreme risk of related markets by decreasing market returns. Besides, the decline will indirectly increase the extreme risk by increasing the negative realized skewness and extreme risk spillovers.

Keywords: SDMV-CAViaR model; Realized skewness; Extreme risk spillovers (search for similar items in EconPapers)
JEL-codes: C14 C32 G10 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:59:y:2022:i:c:s1062940821002242

DOI: 10.1016/j.najef.2021.101632

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