Asymmetric contagion of jump risk in the Chinese financial sector: Monetary policy transmission matters

• Published in: Economic modelling Vol. 119; p. 106107
• Main Authors: Feng, Yun, Hou, Weijie, Song, Yuping
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.02.2023
• Subjects: Asymmetric contagion; Jump risk; Monetary policy transmission; Risk network; C22; Monetary policy transmission; G10; C51; Risk network; Jump risk; Asymmetric contagion
• ISSN: 0264-9993; 1873-6122
• DOI: 10.1016/j.econmod.2022.106107

Existing studies have identified the complexity of jump risk contagion but failed to make a clear distinction between upside and downside jump risks. This paper focuses on the asymmetric effects of jump risk contagion and explores its driving mechanisms from the perspective of monetary policy transmission. We decompose the bilateral jump risks in five financial subsectors into upside and downside jump risks using five-minute high-frequency data from December 13, 2018, to November 17, 2021 and capture their cross-sectional contagions in a network framework. The results indicate that downside jump risk is more contagious than upside jump risk. Furthermore, we verify that poor monetary policy transmission significantly enhances downside jump risk contagion but has no impact on upside jump risk contagion by constructing cointegration regressions. This work alerts risk managers to the complexity of jump risk contagion and suggests that policymakers prevent downside risk contagion by unblocking monetary policy transmission channels. •Bilateral jump risks are decomposed into upside and downside risks.•Different jump risk contagion networks are constructed to demonstrate complexity.•The downside jump risk is more contagious than the upside jump risk.•Poor monetary policy transmission promotes downside jump risk contagion.•Monetary policy transmission has no impact on the upside jump risk contagion.