Risk Connectedness among International Stock Markets: Fresh Findings from a Network Approach

In this study, we analyze the upside and downside risk connectedness among international stock markets. We characterize the connectedness among international stock returns using the Diebold and Yilmaz spillover index approach and compute the upside and downside value-at-risk. We document that the connectedness level of the downside risk is higher than that of the upside risk and stock markets are more sensitive when the stock market declines. We also find that specific periods (e.g., the global financial crisis, the European debt crisis, and the COVID-19 turmoil) intensified the spillover effects across international stock markets. Our results demonstrate that DE, UK, EU, and US acted as net transmitters of dynamic connectedness;however, Japan, China, India, and Hong Kong acted as net receivers of dynamic connectedness during the sample period. These findings provide significant new information to policymakers and market participants.

COVID-19 vaccinations and risk spillovers: Evidence from Asia-Pacific stock markets

This study investigates the impact of COVID-19 vaccinations on volatility (risk) spillovers among major Asia-Pacific stock markets. Utilizing both mean-based and quantile-based connectedness approaches, we examine the evolving patterns and network structure of risk spillovers not only on average but also in the extreme left and right tails. Risk spillovers are typically stronger under extreme shocks. A common regularity observed in the dynamics of standard (average) and extreme risk spillovers is that there are fewer risk spillovers after the launch of the COVID-19 vaccines. We also conduct a series of regression analyses to investigate the association between spillover levels and vaccination rates. The regression results support that an increase in vaccinations is associated with an decrease in standard risk spillovers. Besides, it is observed that vaccinations have an asymmetric impact on the extreme downside-tail and upside-tail risk spillovers. Further, panic sentiment is identified as a potential channel through which vaccinations affect spillovers. Our findings point to the role of COVID-19 vaccinations in stabilizing the Asia-Pacific stock markets by reducing risk spillovers. © 2023 Elsevier B.V.

How to Reduce Extreme Risk of the U.S. Tourism Indices?-Minimum-CVaR Portfolio Approach

This paper combines two tourism indices from the U.S. with six auxiliary assets in a multivariate portfolio in order to minimize extreme risk of the indices. Extreme risk is measured by the conditional Value-at-Risk metric. We construct the two types of portfolios – one is the minimum-risk portfolio, and the other one has the 50% constraint on the tourism indices. Also, we determine the pre-COVID and COVID subsamples via the modified ICSS algorithm. The results indicate that the tourism indices are mostly removed from the minimum-risk portfolios because they are among the riskiest assets. Because of that, the tourism-dominated portfolios gain greater importance. Gold has the highest share as an auxiliary asset in the tourism-dominated portfolios because gold has relatively low risk, but more importantly, gold has very low pairwise correlation with the tourism indices. In the COVID period, the share of gold increases compared to the preCOVID period, which means that the best hedging abilities of gold comes to the fore in a crisis. High risk of the tourism indices is reduced more than 40% in the tourismdominated portfolios. © 2023, Faculty of Social Sciences. All rights reserved.

Extreme risk spillovers across financial markets under different crises

We examine how extreme risk spillovers caused by different crises transmit through financial markets in the US, Europe and Asia-Pacific regions. By modifying the bivariate peak-over-threshold and DCC-GARCH models and using daily negative log-returns from November 1991 to August 2020, we find significant bidirectional extreme risk spillovers with persistent effects between US and other markets. Contributions to extreme risk spillovers vary across crises. The recent COVID-19 shock (non-financial channel) and the 2007–2008 global crisis (financial channel) contribute more to extreme risk spillovers. Moreover, the extreme spillovers in the COVID-19 shock depend more on the non-financial channel compared to the global crisis and cause larger contributions to extreme losses, showing the impact of the non-financial shocks on financial markets.

The existence of flight-to-quality under extreme conditions: Evidence from a nonlinear perspective in Chinese stocks and bonds' sectors

The COVID-19 pandemic has showed that distress to the financial system is always accompanied with the interconnection between the stock and bond markets. However, limited studies have identified the flight-toquality effect between these two markets from a nonlinear extreme perspective. Thus, using the multi-quantile VaR Granger causality test that measures the non-linearity of extreme risk, we investigated this effect in Chinese sectors via extreme risk spillover networks. Based on the findings, defensive (offensive) sectors are dominant in the stock market when facing upside (downside) risk to avoid potential investment losses. The results also confirm the robustness of the conclusion that the investment function of the financial markets weakened during the financial crisis. Moreover, compared to the Financial Bond and Enterprise Bond, the Government Bond is likely to show better risk hedging effect in cross-market risk spillover networks due to its high information transparency.

Research on financial risk spillover of the countries along the Belt and Road - Based on TENET method

With the continuous improvement of trade freedom and the cooperation level of financial institutions among the countries along the Belt and Road, the financial markets among these countries are also gradually integration. Research on identification, contagion and measurement of financial market risk among countries along the Belt and Road is of great practical significance to ensure the healthy development of regional finance. In this paper, the extreme risk spoillover network of stock markets along the Belt and Road is constructed by using TENET method, and the risk characteristics, risk sources, risk transmission paths and risk evolution laws of stock markets under extreme tail risk situation are explored. The research results show that the systemic risk index of the stock markets along the Belt and Road countries has time-varying characteristics, and presents an upward trend during periods of economic pressure. From a regional point of view, the European region was at high risk in 2008 due to the financial crisis, and the Asian region was at high risk during the 2020 COVID-19 pandemic. From the perspective of specific countries, Greece and Cyprus, which are more affected by the European debt crisis, are at higher risk. China mainly receives external financial risks in the Belt and Road financial risk network, which mainly come from Israel, Greece, Singapore and other countries. This research can provide theoretical guidance for macro policy makers and transnational financial investment institutions of countries along the Belt and Road to monitor financial risks and manage foreign imported risks. © 2022, Editorial Board of Journal of Systems Engineering Society of China. All right reserved.

The Role of Risk Forecast and Risk Tolerance in Portfolio Management: A Case Study of the Chinese Financial Sector

Portfolio decisions are affected by the volatility of financial markets and investors’ risk tolerance levels. To better allocate portfolios;we introduce risk tolerance into the portfolio management problem by considering the risk contribution of portfolio components. In this paper, portfolio weights are allocated to two stages. In the first stage, the portfolio risks and the risk contribution of each share are forecasted. In the second stage, we put forward three weighting techniques—“aggressive”, “moderate” and “conservative”, according to three standard levels of risk tolerance. In addition, a new risk measure called “joint extreme risk probability” (JERP), with risk tolerance taken into account, is proposed. A case study of the Chinese financial industry is conducted to verify the performance of our methods. The empirical results demonstrate that weighting techniques constrained by risk tolerance lead to higher gains in a normal market and less loss when a market is risky. Compared with risk-tolerance-adjusted strategies, the relationship between the performance of the traditional conditional value at risk (CVaR) minimization method and the market risk level is less obviously demonstrated. Viewed from the results, JERP functions as an effective signal that helps investors to deal with potential market risks.

Green bonds and other assets: Evidence from extreme risk transmission.

Green bonds (GB) are gaining a prominent role in sustainable development because of their ability to fund environment-friendly projects. This study aims to investigate if investors can benefit from the risk diversification properties of including GB with other assets, particularly within the context of the ongoing COVID-19 pandemic. To do so, we utilize a quantile-connectedness approach to examine a set of GB and traditional assets, i.e., commodities, stocks, and bonds, from 2008 to 2020. We find higher total time-varying risk spillovers during extreme high volatility periods than those with average and low volatility. For pairwise risk spillovers, GB offers more diversification opportunities when volatility is very low. Nevertheless, the diversification benefits increase during the COVID period. The strong bidirectional risk spillovers between GB and conventional bonds imply that GB can be considered a good alternative to traditional bonds while benefiting from their diversification potential, particularly with energy and agriculture. Our findings are useful for investors wishing to implement green diversification portfolio strategies in extreme volatility periods and act as an encouragement to policymakers to establish efficient policies to promote green finance.

Extreme risk spillover between chinese and global crude oil futures.

This paper investigates the risk spillover between China's crude oil futures and international crude oil futures by constructing upside and downside VaR connectedness networks. The findings show that China's crude oil futures behave as a net risk receiver in the global crude oil system, in which Brent and WTI play the leading roles in risk transmission in the system. The dynamic results indicate that the risk spillover between Chinese and international crude oil futures presents obvious time-varying characteristics and has risen sharply since the beginning of 2020, induced by the COVID-19 pandemic.