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Unraveling the Interplay of Knowledge and Innovation in the Global Financial System: A Vine Copula Analysis of Sino-US Financial Risk Contagion

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Abstract

In the dynamic realm of global finance, understanding the intricate relationships among financial markets is imperative. Financial risk contagion, the transmission of market disturbances across various financial instruments, holds profound implications for policymakers, investors, and financial institutions. This paper introduces an innovative approach by bridging the gap between traditional and Copula family models to analyze the interdependencies between various financial markets. We construct a comprehensive model to depict their intricate dependence relationships by utilizing a diverse set of financial instruments, including the Sino-US 10-year bond spread, stock market indices (CSI 300 index and S&P 500 index), and the USD/RMB exchange rate. Our findings reveal a risk-dependent structure between markets, with the Sino-US 10-year bond spread exerting a significant negative influence on stock markets. Complex and diverse risk correlations are observed, with a two-way risk overflow effect between stock markets and other financial markets. Additionally, the paper explores how Sino-US economic cycles and monetary policy disparities intensify risk linkages. This research contributes valuable insights for scholars, practitioners, and policymakers, offering a nuanced understanding of risk interdependencies in a high-dimensional context. It equips stakeholders with more robust risk management and decision-making tools in an increasingly interconnected global financial landscape.

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Authors and Affiliations

  1. College of Economics and Management, South China Agricultural University, Guangzhou, 510642, Guangdong, China

    Hua He

  2. College of Mathematics and Informatics (College of Software Engineering), South China Agricultural University, Guangzhou, 510642, Guangdong, China

    Shuhui Cai & Yan Zhou

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  1. Hua He
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  2. Shuhui Cai
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  3. Yan Zhou
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Correspondence to Yan Zhou.

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He, H., Cai, S. & Zhou, Y. Unraveling the Interplay of Knowledge and Innovation in the Global Financial System: A Vine Copula Analysis of Sino-US Financial Risk Contagion. J Knowl Econ (2024). https://doi.org/10.1007/s13132-024-01869-1

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