Connectedness and risk spillovers in China’s stock market: A sectoral analysis

By Fei Wu, Dayong Zhang, Zhiwei Zhang. Economic Systems, 2019

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Abstract This paper shows how sectors in the Chinese stock market are connected and investigates risk spillovers across these sectors. Using graph theory and a recently developed time series technique, we are able to identify the systemically important sector in the market and the patterns of risk spillovers across sectors over time. Unlike standard econometric modeling, graph theory enables us to approach this question in a more reader-friendly way. The empirical results show that Industrial sector plays a central role and should thus be considered the systemically most important sector in the Chinese stock market. The spillover structure is found to be time-varying. While Industrial sector dominates the system for most of the time, other sectors such as Consumer Discretionary sector also occasionally appear as the central sector. Our empirical results also indicate that the simple correlation-based approach can produce equally useful information as more advanced econometric models.

Subfields: Economics and Econometrics, Statistical and Nonlinear Physics

View Paper: https://www.semanticscholar.org/paper/aba83b2ce502558f1cb6482b8ad147a3e888e910