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Oil prices and systemic financial risk: A complex network analysis

Author

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  • Wang, Kangsheng
  • Wen, Fenghua
  • Gong, Xu

Abstract

The risk associated with the dramatic volatility of oil prices has become an important factor affecting the stability of the financial system. Through a complex network viewpoint, this study uses firm-level data to investigate systemic financial risk contagion from the oil market to the financial markets. Our study considers the risk amplification effect in financial network and provides an in-depth empirical analysis of risk contagion among financial institutions under the oil market risk shock. According to the findings of this paper, systemic financial risk increases dramatically during oil crisis events. This paper also captures important characteristics of the network, including major risk receivers and risk transmitters, and finds that banks suffer more risk losses from the oil market. Furthermore, considering the important role of the financial system in the macro economy, the systemic financial risk caused by oil market risk has long-term negative effects on economic output.

Suggested Citation

  • Wang, Kangsheng & Wen, Fenghua & Gong, Xu, 2024. "Oil prices and systemic financial risk: A complex network analysis," Energy, Elsevier, vol. 293(C).
    • Handle: RePEc:eee:energy:v:293:y:2024:i:c:s0360544224004444
    DOI: 10.1016/j.energy.2024.130672
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    More about this item

    Keywords

    Systemic financial risk; Oil prices; Risk contagion; Complex network;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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