Coal price shock propagation through sectoral financial interconnectedness in China's stock market: Quantile coherency network modelling and shock decomposition analysis

Yan Zhang, Yushi Xu, Xintong Zhu and Jionghao Huang

Journal of Commodity Markets, 2024, vol. 34, issue C

Abstract: The long and continuing coal-dominated energy structure in China makes it important to investigate the impact of coal price shocks on China's financial markets. This study identifies whether volatilities in coal market may propagate between sectoral equity markets through the heterogeneous connectedness between these markets, and even further contribute to larger scale overall instabilities. We first apply the cross-spectral quantile coherency (QC) to identify the time-frequency interconnectedness among returns of 28 sectors in China's equity market. A spatial autoregressive (SAR) framework based on the QC network is further utilized to identify the indirect effect propagating through the heterogeneous interconnectedness between 28 sectoral equity markets. The empirical results indicate significant risk contagion effects during market turmoil, while strong risk absorbing effects are confirmed for the tranquil case. The significantly varying sectoral interconnectedness along with the corresponding heterogeneous pattern of shock propagation under various market specifications may provide evidence for the spillover effects to be the key mechanism and the sectoral interconnectedness as an important channel for coal price shock propagation, which is essential to the effectiveness of portfolio diversification and financial stabilizing policy.

Keywords: Sectoral financial interconnectedness; Quantile coherency network; Coal price volatility; Shock propagation (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocoma:v:34:y:2024:i:c:s2405851324000114

DOI: 10.1016/j.jcomm.2024.100392

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