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Dynamic patterns and the latent community structure of sectoral volatility and jump risk contagion

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  • Zhao, Wandi
  • Gao, Yang

Abstract

This study explores the latent driving structure of sectoral risk contagion in terms of volatility and jump through the factor model framework for high-dimensional matrix-valued time series. We find strong inter-sector volatility and jump spillover effects at the mean level and higher effects at extreme tails, while jump spillovers reflect sharper structural shifts with the promotion of major financial or public events. Both volatility and jump are contagious in the form of a community-structure. Our findings provide new evidence about sectoral risk contagion and the importance of accurately identifying the underlying structure of risk contagion for efficiently realizing hierarchical regulation.

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  • Zhao, Wandi & Gao, Yang, 2024. "Dynamic patterns and the latent community structure of sectoral volatility and jump risk contagion," Emerging Markets Review, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:ememar:v:59:y:2024:i:c:s1566014124000050
    DOI: 10.1016/j.ememar.2024.101110
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    More about this item

    Keywords

    Volatility spillover; Jump spillover; Factor model; TVP-VAR; Matrix-valued data;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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