Key market identification, mechanism transmission, and extreme shock during the risk spillover process: an empirical study of the G20 FOREX markets

Wei Zhou, Jin Guo, Ning Chen () and Shuai Lu
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Wei Zhou: Yunnan University of Finance and Economics
Jin Guo: Yunnan University of Finance and Economics
Ning Chen: Southeast University
Shuai Lu: Southeast University

Empirical Economics, 2023, vol. 65, issue 6, No 3, 2549-2582

Abstract: Abstract The role of the G20 in global governance has been increasingly prominent in the context of the extensive spread of coronavirus disease 2019 and the aggravation of financial risk contagion. Detecting the risk spillovers among the G20 FOREX markets is crucial to maintain financial stability. Therefore, this paper first adopts a multi-scale approach to measure the risk spillovers among the G20 FOREX markets from 2000 to 2022. Furthermore, the key markets, the transmission mechanism, and the dynamic evolution are researched based on the network analysis. We derive the following findings: (1) The magnitude and volatility of the total risk spillover index of the G20 countries are highly associated with extreme global events. (2) The magnitude and volatility of risk spillovers among the G20 countries are asymmetric in the different extreme global events. (3) The key markets in the risk spillover process are identified, and the USA always occupies a core position in the G20 FOREX risk spillover networks. (4) In the core clique, the risk spillover effect is obviously high. In the clique hierarchy, as the risk spillover effect is transmitted downward, the risk spillovers present the decrease trends. (5) The density, transmission, reciprocity, and clustering degrees in the G20 risk spillover network during the COVID-19 period are much higher than that in other periods.

Keywords: Risk spillovers; Key markets identification; Transmission mechanism; Extreme shock; FOREX market (search for similar items in EconPapers)
JEL-codes: C22 F3 F5 O1 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s00181-023-02436-4

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