Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach

Due to the advent of deglobalization and regional integration, this article aims to adopt LASSO-based network connectedness to estimate the multiscale tail risk spillover effects of global stock markets. The results show that tail risk varies across frequencies and shocks. In static analysis, the ri...

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Main Authors: Yuting Du, Xu Zhang, Zhijing Ding, Xian Yang
Format: Article
Language:English
Published: Wiley 2022-01-01
Series:Complexity
Online Access:http://dx.doi.org/10.1155/2022/7635144
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author Yuting Du
Xu Zhang
Zhijing Ding
Xian Yang
author_facet Yuting Du
Xu Zhang
Zhijing Ding
Xian Yang
author_sort Yuting Du
collection DOAJ
description Due to the advent of deglobalization and regional integration, this article aims to adopt LASSO-based network connectedness to estimate the multiscale tail risk spillover effects of global stock markets. The results show that tail risk varies across frequencies and shocks. In static analysis, the risk is centered mostly on the developed European and North American markets at a low frequency (long term), and regionalization is imposed on the moderate frequency (midterm). Moreover, emerging markets could be sources of risk spillover, especially at the highest frequency (short term) where there is no absolute risk center. In dynamic analysis, we use rolling window estimation and find that different frequencies identify distinct episodes of shocks, which provides us with the reason for the diverse risk centers at different time scales in static analysis. Our findings provide heterogeneous financial practitioners, regulators, and investors with diverse characteristics of stock markets under multiple time horizons and help them operate their own trading strategies.
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issn 1099-0526
language English
publishDate 2022-01-01
publisher Wiley
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spelling doaj-art-4a6f7857765e43f9ac074a343e0339d42025-02-03T01:11:55ZengWileyComplexity1099-05262022-01-01202210.1155/2022/7635144Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology ApproachYuting Du0Xu Zhang1Zhijing Ding2Xian Yang3School of Management Science and EngineeringSchool of Management Science and EngineeringChang Wang School of HonorsSchool of Management Science and EngineeringDue to the advent of deglobalization and regional integration, this article aims to adopt LASSO-based network connectedness to estimate the multiscale tail risk spillover effects of global stock markets. The results show that tail risk varies across frequencies and shocks. In static analysis, the risk is centered mostly on the developed European and North American markets at a low frequency (long term), and regionalization is imposed on the moderate frequency (midterm). Moreover, emerging markets could be sources of risk spillover, especially at the highest frequency (short term) where there is no absolute risk center. In dynamic analysis, we use rolling window estimation and find that different frequencies identify distinct episodes of shocks, which provides us with the reason for the diverse risk centers at different time scales in static analysis. Our findings provide heterogeneous financial practitioners, regulators, and investors with diverse characteristics of stock markets under multiple time horizons and help them operate their own trading strategies.http://dx.doi.org/10.1155/2022/7635144
spellingShingle Yuting Du
Xu Zhang
Zhijing Ding
Xian Yang
Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach
Complexity
title Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach
title_full Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach
title_fullStr Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach
title_full_unstemmed Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach
title_short Multiscale Tail Risk Connectedness of Global Stock Markets: A LASSO-Based Network Topology Approach
title_sort multiscale tail risk connectedness of global stock markets a lasso based network topology approach
url http://dx.doi.org/10.1155/2022/7635144
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AT zhijingding multiscaletailriskconnectednessofglobalstockmarketsalassobasednetworktopologyapproach
AT xianyang multiscaletailriskconnectednessofglobalstockmarketsalassobasednetworktopologyapproach