A Study on the Spillover Effect of Upside and Downside Risks among Industries in China
Preventing and resolving systemic risks requires not only a global perspective based on economic and finan-cial linkages,but also a grasp of the characteristics of risk evolution.The purpose of this paper is to examine the risk contagion effect among China's industries during the process of systemic risk accumulation and release.In this paper,industry volatility is decomposed into low volatility,representing upside risk and high volatility,represent-ing downside risk.Based on the Elastic-Net-VARX model,this paper builds the industry risk spillover network of China's eco-nomic and financial system under the influence of international shocks.In addition,this paper analyzes the total risk spillover and directional spillover levels among industries in China from the static and dynamic aspects,and explores the differences and contagion characteristics of upside and downside risk spillovers across various industries.The findings are as followed.Firstly,the upside and downside risks of China's economic and financial system show signifi-cant cross-industry contagion characteristics.Industrials emerge as the most important risk sender,while Consumer Discretion-ary is identified as the most crucial risk receiver.Secondly,the spillover effect of upside and downside risks is asymmetrical,and the spillover level of downside risks is higher than that of upside risks.The source of upside risk spillover is the financial industry,while the source of downside risk spillover is the real economy industry.Thirdly,compared to spillover-in,the dispar-ity between downside risk and upside risk spillover-out is more significant.Specifically,the downside risk spillover-out of In-formation Technology,Communication Services and Consumer Discretionary is significantly higher than the upside risk.Con-versely,the upside risk spillover-out of Financials is significantly higher than the downside risk.In order to improve China's systemic risk prevention and control system,this paper puts forward the following policy rec-ommendations.First,clarify the different risk senders and receivers of upside and downside risks,and implement differentiated prevention and control measures for each category;Second,intensify risk monitoring of key industries,with particular emphasis on Information Technology,Communication Services and Consumer Discretionary,which exhibit notably heightened downside risk spillover.Additionally,prioritize attentions to Financials,characterized with higher upside risk spillover.
High and Low VolatilityUpside and Downside RiskVolatility Spillover EffectSystemic Risk
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