The extreme risk connectedness of the global financial system: G7 and BRICS evidence

Ning Chen, Shaofang Li and Shuai Lu

Journal of Multinational Financial Management, 2023, vol. 69, issue C

Abstract: Using daily money, stock, bond, foreign exchange, and credit markets data in the G7 and BRICS between 2006 and 2022, this paper investigates the extreme risk interconnectedness across countries and markets. Specifically, we propose a multilayer nonlinear extreme risk spillover network based on the CAViaR model and nonlinear Granger causality test to capture extreme risk spillovers across and within layers from static and dynamic perspectives, respectively. We find that the extreme risks of the G7 countries are higher than those of the BRICS countries. Simultaneously, extreme risks in the stock and foreign exchange markets are significantly higher than those in other markets. The stock market tends to be the net emitter of extreme risks, and the bond and credit markets tend to be the net recipients. During special event periods, BRICS countries (except Russia) tend to be net recipients of extreme risks. Our study provides new evidence on the interconnectedness of extreme risk across markets and countries, which has several practical implications for managing financial risks and maintaining the financial system’s stability.

Keywords: Extreme risks; Spillover effect; Nonlinear Granger causality test; Multilayer network· (search for similar items in EconPapers)
JEL-codes: C22 F3 F5 O1 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:69:y:2023:i:c:s1042444x23000312

DOI: 10.1016/j.mulfin.2023.100812

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