A Hybrid Approach for the Assessment of Risk Spillover to ESG Investment in Financial Networks

Lei Li, Kun Qin and Desheng Wu
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Lei Li: Economics and Management School, University of Chinese Academy of Sciences, Beijing 100049, China
Kun Qin: School of International Trade and Economics, Central University of Finance and Economics, Beijing 100098, China

Sustainability, 2023, vol. 15, issue 7, 1-16

Abstract: In this paper, we present a framework for evaluating risk contagion by merging financial networks with machine learning techniques. The framework begins with building a financial network model based on the inter-institutional correlation network, followed by analyzing the structure and overall value changes of the financial network under the stress of a liquidation shock. We then examine the network’s evolution over time. We also use three machine learning techniques to assess the abnormal volatility of important financial institutions in the financial network. Finally, we evaluate the spillover effects of risk volatility in financial networks on ESG investments. The findings suggest that the financial network becomes more robust as the connections among financial institutions become more intricate. This leads to an improvement in the ability of the financial network to withstand systemic risk events. Overall, our study provides evidence of the negative impact of risk spillovers in financial networks on ESG investments, highlighting the need for a more sustainable and resilient financial system. This innovative framework combining financial network modeling and machine learning prediction provides a deeper understanding of the evolution of financial networks and a more accurate evaluation of abnormal volatility in financial networks.

Keywords: ESG investment; risk assessment; financial network; machine learning (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:15:y:2023:i:7:p:6123-:d:1114244

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