Tail risk spillovers in the stock and forex markets at the major emergencies: Evidence from the G20 countries

Kelong Li, Chi Xie, Yingbo Ouyang, Tingcheng Mo and Yusen Feng

International Review of Financial Analysis, 2024, vol. 96, issue PB

Abstract: We explore the tail risk spillover in the stock and foreign exchange (forex) markets along the G20 countries based on the tail-event driven network (TENET) method. To effectively capture the risk spillover mechanism from the tail-dependence perspective, we analyze the network connectedness in four aspects (namely system, market, region, and country) and explore it at the major emergencies. We find that (i) the system-level risk spillover peaks at the US subprime crisis, and subsequently undergoes several cyclical volatility in relatively high level in the period of major emergencies; (ii) the cross-market risk spillover from the stock markets to the forex markets plays a dominant role, while that from the forex markets to the stock markets is small; and (iii) the stock and forex markets in Europe and America transmit the large tail risk spillovers to other regions, and the forex markets in these regions are sensitive to the major emergencies.

Keywords: Tail risk spillovers; Connectedness; G20 countries; Stock and forex markets; Tail-event driven network (TENET) (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006446

DOI: 10.1016/j.irfa.2024.103712

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