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Over-expected shocks and financial market security: Evidence from China's markets

Author

Listed:
  • Li, Yueshan
  • Chen, Shoudong
  • Sensoy, Ahmet
  • Wang, Lu

Abstract

Based on the quantile connectedness method, we investigate China's financial market's structural characteristics under varying shock scales. Our results reveal an asymmetric U-shaped pattern of risk spillovers within China’s financial market under different shock magnitudes. The measures of relative intensity and relative tail dependence indicators show that the risk spillover is much larger in the right tail than in the intermediate and conditional mean states. Moreover, different financial sub-markets exhibit time-varying heterogeneity when facing over-expected shocks. The elasticity of risk-shock is greater in the money and foreign exchange markets. The commodity market tends to take on risk, but becomes a significant source of risk spillover during over-expected shocks. These findings offer policymakers valuable insights to comprehensively evaluate risks and effectively formulate policies.

Suggested Citation

  • Li, Yueshan & Chen, Shoudong & Sensoy, Ahmet & Wang, Lu, 2024. "Over-expected shocks and financial market security: Evidence from China's markets," Research in International Business and Finance, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:riibaf:v:68:y:2024:i:c:s0275531923003203
    DOI: 10.1016/j.ribaf.2023.102194
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    More about this item

    Keywords

    Over-expected Shock; Financial Market Security; Quantile Connectedness; Risk Spillover;
    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
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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