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Global stock markets risk contagion: Evidence from multilayer connectedness networks in the frequency domain

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  • Ouyang, Zisheng
  • Zhou, Xuewei
  • Lai, Yongzeng

Abstract

Multilayer connectedness networks are a promising tool for unveiling the contagion mechanism of financial risk. This paper constructs multilayer connectedness networks in the frequency domain to examine the risk contagion among global stock markets from January 4, 2006, to June 30, 2022. We analyze the global efficiency, average connectedness strength, and network density of single-layer connectedness network, and investigate the average overlap degree, network correlation coefficient and network participation coefficients of inter-layer connectedness networks. We observe that (i) the risk contagion among global stock markets shows different behaviors in the short-, medium-, and long-term, (ii) during the period of financial stress, the medium- and long-term connectedness increase significantly, while the short-term connectedness decrease significantly, and (iii) the Asian stock markets are main risk receivers, but the risks they receive are heterogeneous in frequency. Our work provides a new perspective for studying global risk contagion and supply valuable knowledge for investor and regulators.

Suggested Citation

  • Ouyang, Zisheng & Zhou, Xuewei & Lai, Yongzeng, 2023. "Global stock markets risk contagion: Evidence from multilayer connectedness networks in the frequency domain," The North American Journal of Economics and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:ecofin:v:68:y:2023:i:c:s1062940823000967
    DOI: 10.1016/j.najef.2023.101973
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    Keywords

    Financial risk; Frequency domain; Multilayer connectedness networks; Global stock markets;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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