Research on the tail risk contagion in the international commodity market on the China's financial market: based on a network perspective
Abstract
Purpose
Considering the frequency of extreme events, enhancing the global financial system's stability has become crucial. This study aims to investigate the contagion effects of extreme risk events in the international commodity market on China's financial industry. It highlights the significance of comprehending the origins, severity and potential impacts of extreme risks within China's financial market.
Design/methodology/approach
This study uses the tail-event driven network risk (TENET) model to construct a tail risk spillover network between China's financial market and the international commodity market. Combining with the characteristics of the network, this study employs an autoregressive distributed lag (ARDL) model to examine the factors influencing systemic risks in China's financial market and to explore the early identification of indicators for systemic risks in China's financial market.
Findings
The research reveals a strong tail risk contagion effect between China's financial market and the international commodity market, with a more pronounced impact from the latter to the former. Industrial raw materials, food, metals, oils, livestock and textiles notably influence China's currency market. The systemic risk in China's financial market is driven by systemic risks in the international commodity market and network centrality and can be accurately predicted with the ARDL-error correction model (ECM) model. Based on these, Chinese regulatory authorities can establish a monitoring and early warning mechanism to promptly identify contagion signs, issue timely warnings and adjust regulatory measures.
Originality/value
This study provides new insights into predicting systemic risk in China's financial market by revealing the tail risk spillover network structure between China's financial and international commodity markets.
Keywords
Acknowledgements
The authors would like to express their gratitude to the Editor-in-Chief, the Associate Editor, and the two referees for their careful reading and insightful comments, which greatly improved the quality of the paper.
Funding: This work was supported by the Project for Humanities and Social Sciences of USST (No. 21SKPY03).
Citation
Liao, X. and Li, W. (2023), "Research on the tail risk contagion in the international commodity market on the China's financial market: based on a network perspective", Kybernetes, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/K-06-2023-1001
Publisher
:Emerald Publishing Limited
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