Volatility Spillovers and Risk Contagion Paths with Capital Flows across Multiple Financial Markets in China. Issue 4 (15th March 2020)

• Record Type: Journal Article
• Authors: Zhao, Xuejin; Zhang, Wei-Guo; Liu, Yong-Jun
• Is Part Of: Emerging markets finance & trade. Volume 56:Issue 4(2020)
• Page Start: 731
• Page End: 749
• Publication Date: 2020-03-15
• Subjects: capital flows -- financial markets -- risk contagion -- transmission path -- volatility spillover; E44 -- G01 -- G10 -- G18; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2018.1472080
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: This article investigates the issues of volatility spillovers and risk contagion paths with capital flows across the foreign exchange, monetary, credit, and stock markets in a country. We derive the theoretical price linkage of financial markets based on traditional theories of the Gordon model and interest rate parity theory. Then, we set up a volatility spillover model of financial markets and show the cross-market volatility spillover effects by using China's historical data from January 1996 to December 2016. Regarding the asymmetric spillovers, we determine that they are related to cross-market capital flow routes. After empirical analysis on the unnatural capital flows' contribution to financial risk contagion, three cross-market risk transmission paths are identified based on the capital flows, which originate from the exchange rate risk, credit risk, and stock volatility risk, respectively.