Abstract
Uncovering the risk-transmitting path within economic sectors in China is crucial for understanding the stability of the Chinese economic system, especially under the current situation of the China–US trade conflicts. In this paper, we aim to uncover the risk spreading channels by means of volatility spillovers within the Chinese sectors using stock market data. By applying the generalized variance decomposition framework based on the VAR model and the rolling window approach, a set of connectedness matrices is obtained to reveal the overall and dynamic spillovers within sectors. We find that 17 sectors (mechanical equipment, electrical equipment, utilities, and so on) are risk transmitters and 11 sectors (national defense, bank, non-bank finance, and so on) are risk takers during the whole period. Under the extreme risk events (i.e., the global financial crisis, the Chinese interbank liquidity crisis, the Chinese stock market crash, and the China–US trade war), the connectedness measures significantly increase and the financial sectors play a buffer role in stabilizing the economic system. Our results are robust to changes of the model parameters. Our study not only uncovers the spillover effects within the Chinese sectors, but also highlights the deep understanding of the risk contagion patterns in the Chinese stock markets.
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Acknowledgements
We are grateful to Peng Wang, Mu-Yao Li, and Yin-Jie Ma for fruitful discussions. We also gratefully acknowledge the referee and the editor for their constructive comments, which have improved the quality of the paper.
Funding
This work was partly supported by the National Natural Science Foundation of China (U1811462, 71532009, 91746108, 71871088), the Shanghai Philosophy and Social Science Fund Project (2017BJB006), the Program of Shanghai Young Top-notch Talent (2018), the Shanghai Outstanding Academic Leaders Plan, and the Fundamental Research Funds for the Central Universities.
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Z.-Q.J. and G.-J.W designed research; Y.-Y.S. and Z.-Q.J. performed research; W.-X.Z. contributed new reagents/analytic tools; Y.-Y.S. and J.-C.M. analyzed data; Y.-Y.S., Z.-Q.J., and W.-X.Z. wrote the paper.
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Shen, YY., Jiang, ZQ., Ma, JC. et al. Sector connectedness in the Chinese stock markets. Empir Econ 62, 825–852 (2022). https://doi.org/10.1007/s00181-021-02036-0
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DOI: https://doi.org/10.1007/s00181-021-02036-0
Keywords
- Network connectedness
- Volatility spillovers
- Financial networks
- Stock market sectors
- Connectedness indexes