Quantitative Measurements and Asymmetries of Extreme Risk Spillover Effects: Evidence from China's Stock and Bond Markets

Abstract

Abstract: Extreme risk spillover effects have important implications in terms of portfolios and risk management. The paper characterizes the dependence structure between China's stock and bond market using dynamic copula, then quantitatively measures the extreme risk spillover effects between China's stock and bond market using CoVaR. The empirical results show that downside risk spillover effects caused by upside risk of the other market and upside risk spillover effects caused by downside risk of the other market have been documented, and the asymmetries of extreme risk spillover effects are significant. Specifically, the strength of downside risk spillover effects caused by upside risk of the other market is larger than that of upside risk spillover effects caused by downside risk of the other market, and the strength of risk spillover effects in bond market caused by stock market is larger than that of risk spillover effects in stock market caused by bond market.

Key words: CoVaR, copula, extreme risk, risk spillover, asymmetry

Hou Xianping, Fu Chunyan, Lin Zixiao, Lin Yu. Quantitative Measurements and Asymmetries of Extreme Risk Spillover Effects: Evidence from China's Stock and Bond Markets[J]. Management Review, 2020, 32(9): 55-67.

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