Downside and upside risk spillovers between financial industry and real economy based on linear and nonlinear networks

The spillover effects between financial sectors and real economy in different risk levels are of concern for investors and regulatory authorities. Firstly, based on the sector returns of China, the VaRs at different quantiles are estimated by MVMQ-CAViaR model. Then, we construct linear and nonlinear risk spillover networks in downside, normal and upside cases by employing DY and nonlinear Granger causality methods. Finally, we analyze topological characteristics of linear and nonlinear risk spillover networks at the system and sector levels. The results show that linear and nonlinear risk spillover networks in different risk levels exhibit various topology properties, they are unevenly spread over each risk level. At the system-level, we observe that there is a significant difference between linear and nonlinear risk spillover networks in uniqueness and overlapping. At the sector-level, the financial sectors (such as DF and RE sectors) can form a certain spillover effect on sectors of real economy across quantiles, but the net spillover effects of the financial sectors are smaller than that of some real economy sectors. Finally, the crisis shocks have impact on risk spillover effects between financial sectors and real economy. In downside and upside cases, the spillover effects between sectors during crisis period is higher than that during pre-crisis period.