How does bubble risk propagate among financial assets? A perspective from the BSADF-vine copula model

Can-Zhong Yao, Min-Jian Li and Xin Xu

International Review of Economics & Finance, 2023, vol. 88, issue C, 347-364

Abstract: In this paper, the BSADF method is used to construct the bubble net value sequence of 11 mainstream financial assets, and the vine copula model is used to analyze the characteristics of the bubble-related structure. First, we use the BSADF method to measure the bubbles of various financial assets. The results show that since the outbreak of COVID-19, most types of assets have experienced a sharp bubble rise and their longest bubble period as central banks have implemented quantitative easing policies. Furthermore, this article reveals the path characteristics of bubble risk transmission in different assets using the vine copula model. The R vine copula is found to be best for analyzing the tail dependence structure. The S&P 500 and the international gold price occupy the hub position in the bubble dependence structure of various financial assets. The Shanghai Composite Index and the US Dollar Index can act as relays and accelerators in the transmission of bubble risk across the financial system. Finally, we explore the tail dependence structure between financial assets. The results indicate that gold can be a good hedge against the bubble risk of the Hang Seng Index and WTI crude oil futures. The COVID-19 pandemic and accommodative monetary policies by governments can create conditions for bubble risk to spread between assets such as Bitcoin and China’s 10-year Treasury bonds and between the US Dollar Index and the S&P 500.

Keywords: Bubble; BSADF; Vine copula; Financial risk (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105905602300196X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:88:y:2023:i:c:p:347-364

DOI: 10.1016/j.iref.2023.06.027

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().