Network Effects Of Extreme Risk Spillovers In Financial Markets

Financial reform and technological development have accelerated the process of financial liberalization and globalization,and the interconnectedness of financial markets has become increasingly close,resulting in more and more complex spillover phenomena of mutual risk transmission.With the amplification of financial network effects,the impact of risk spillover is even greater.Compared with the risk caused by a crisis in general,the risk caused by an extreme event can cause greater losses,and has the characteristics of greater harm effect and longer duration.Coupled with the increasing interconnectedness of financial markets,the network effect of extreme risk spillover between markets is becoming more and more obvious.In view of this,clarifying the extreme risk spillover and its network effect among financial markets,clarifying the evolution and structural characteristics of the network,and identifying the extreme risk spillover paths and key nodes in the network can help improve the ability of financial markets to cope with extreme risk spillover shocks,and also help carry out effective risk prevention and management to reduce risk spillover.This article analyzes the network effects of extreme risk spillovers in six important financial markets from both theoretical and empirical perspectives.Specifically,on the one hand,it first defines the concepts of extreme risk,risk spillover,and network effects of risk spillover in financial markets at the theoretical level,provides a theoretical analysis of the phenomenon of extreme risk spillover in financial markets and network effects of extreme risk spillover in financial markets,and introduces the models and methods used.On the other hand,the empirical analysis consists of three main parts.First,the MVMQ-CAViaR model is used to measure and analyze the extreme risk spillover among six financial markets.Second,based on the model results,a network of extreme risk spillovers in financial markets is constructed.Next,the measurement and analysis of the network effects of extreme risk spillovers in financial markets were carried out,which mainly included clarifying the network structure of risk spillovers,identifying the spillover paths of extreme risks in each market,calculating and analyzing the overall characteristics of the network,and performing faction analysis and block model analysis of the network,analysis of individual characteristics of network nodes and identification of key nodes.The risk spillovers caused by extreme events are complex and diverse,and the network effects brought about by the networks formed accordingly are even more intricate and complex.Based on the above analysis and research,the relevant conclusions can be summarized as follows.First,financial markets are not independent or segmented from each other,but are inextricably linked,thus forming a complex relationship of extreme risk spillovers.The extreme value-at-risk of the 1% Va R measure in each market shows obvious aggregation,and the autocorrelation of the impact of yield shocks on the extreme valueat-risk is strong,as is the autocorrelation of the extreme risk spillover in each market.Second,the changes of extreme value at risk vary across markets after external shocks,and the extreme value at risk of the stock market and the real estate market are more sensitive to shocks in their own markets.Third,there are significant unidirectional and bidirectional spillover relationships in the extreme risk spillover network,respectively.The stock market is more receptive to risk spillover from other markets,The bond and foreign exchange markets have more risk spillover to other markets,while the money market has a more balanced relationship between outward spillover and receptive spillover,and the real estate market has the most complex extreme risk spillover path.Fourth,the results of the network effect measurement and analysis show that the network has become denser,and the markets have become increasingly connected,with extreme risk spillovers becoming more significant and more likely to generate risk spillovers.Most of the segments in the network are net risk spillover segments,the foreign exchange market is in a more central position in the network,and the factions consisting of the stock market,money market and foreign exchange market have weaker extreme risk spillover and higher independence in the network.The above findings make us realize that governments and financial regulators,financial market firms and financial market investors should pay close attention to extreme risk spillovers among markets and their network effects.Regulators should develop effective,timely,reasonable and targeted risk prevention and control measures according to the different characteristics of risk spillovers in each market.The markets represented by key nodes in the network,such as the foreign exchange market and the real estate market,are given focused attention to achieve effective node management.Enterprises and investors adjust their resource allocation and investment strategies in a timely manner according to risk management and regulation policies,in relation to market risk spillovers,and thus avoid risks.