Shock transmissions and business linkages among US sectors

Linh Xuan Diep Nguyen (), Thanaset Chevapatrakul () and Simona Mateut
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Linh Xuan Diep Nguyen: University of Leicester, Brookfield
Thanaset Chevapatrakul: University of Nottingham

Annals of Operations Research, 2023, vol. 330, issue 1, No 19, 517-552

Abstract: Abstract This paper examines the shock spillovers between US sectors and their dependence on the intersectoral business linkages. Our forecast error variance decompositions reveal significant shock transmissions among trading sectors, especially in turbulent periods such as the financial crisis and the COVID-19 pandemic. The dymamics of shock spillovers reflect the impacts of the pandemic on economic sectors. Shock spillovers are shown to be influenced by the strength of the intersectoral trading relationships. Shocks to a sector’s important supplier have a strong impact on the forecast error variance of the sector’s stock return. The total directional spillovers from/ to a sector are linked with the number of close commercial linkages between that sector and other sectors.

Keywords: Asset pricing; Stock market; Shock transmission; Variance decomposition; Connectedness; Input–output linkage (search for similar items in EconPapers)
JEL-codes: C30 E16 E44 G11 G12 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-022-04979-8

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