Intensity Of Spillovers Research Articles

Financial Linkages and Sectoral Business Cycle Synchronization: Evidence from Europe

We analyze whether financial integration between countries leads to converging or diverging business cycles using a dynamic spatial model. Our model allows for contemporaneous spillovers of shocks to GDP growth between countries that are financially integrated and delivers a scalar measure of the spillover intensity at each point in time. For a financial network of ten European countries from 1996-2017, we find that the spillover effects are positive on average but much larger during periods of financial stress, pointing towards stronger business cycle synchronization. Dismantling GDP growth into value added growth of ten major industries, we observe that some sectors are strongly affected by positive spillovers (wholesale & retail trade, industrial production), others only to a weaker degree (agriculture, construction, finance), while more nationally influenced industries show no evidence for significant spillover effects (public administration, arts & entertainment, real estate).

A Projection-Based Nonparametric Test of Conditional Quantile Independence

This paper proposes a nonparametric procedure for testing conditional quantile independence using projections. Relative to existing smoothed nonparametric tests, the resulting test statistic: (i) detects the high frequency local alternatives that converge to the null hypothesis in probability at faster rate and, (ii) yields improvements in the finite sample power when a large number of variables are included under the alternative. In addition, it allows the researcher to include qualitative information and, if desired, direct the test against specific subsets of alternatives without imposing any functional form on them. We use the weighted Nadaraya-Watson (WNW) estimator of the conditional quantile function avoiding the boundary problems in estimation and testing and prove weak uniform consistency (with rate) of the WNW estimator for absolutely regular processes. The procedure is applied to a study of risk spillovers among the banks. We show that the methodology generalizes some of the recently proposed measures of systemic risk and we use the quantile framework to assess the intensity of risk spillovers among individual financial institutions.

Impacts of topography change on saltwater intrusion over the past decade in the Changjiang Estuary

Saltwater intrusion in estuaries is mainly controlled by tides and river discharge, as well as by topography and other factors. The Changjiang estuary has been seen a significant change in its topography from the data obtained in 2007 and 2017. In this study, a well-validated 3D numerical model was used to simulate and analyze the residual water and salt transport, water diversion ratio (WDR) in bifurcated channels and water resources in the Changjiang Estuary in 2007 and 2017. The comparisons of the model results showed that due to the North Branch becoming much shallower and narrower over the period from 2007 to 2017, the overall salinity in the North Branch decreased and the intensity of saltwater spillover (SSO) from the North Branch into the South Branch weakened. In the North Channel, the simulated residual or net transection water flux (NTWF) and WDR decreased during spring tides, resulting in increased saltwater intrusion. During neap tides, the saltwater intrusion was weakened despite the decreased NTWF and WDR because the water depth at the river mouth became shallower. The changes of topography during that period also resulted in changes of DWR, NTWF, salt transport across the tidal flats and dykes in the North Passage, South Passage and the South Channel, as well as overall dynamic mechanism. The results indicated that the salinity at the water intakes of the three reservoirs in the estuary slightly decreased, indicating that the time that reservoirs can take water from the estuary become longer in dry seasons. In the scenario of complete silt-up of the North Branch, the saltwater intrusion was weakened in the South Branch because of the disappearance of the SSO, which was favorable for the utilization of freshwater resources, but enhanced in the North Channel, North and South Passages. The overall influence from the topographic change over the period is that the saltwater intrusion is weakened in the North Branch, and enhanced during spring tides and weakened during neap tides in the North Channel, North and South Passages. Sediment accretion in the North Branch is favorable for utilization of freshwater resources.

How do sovereign credit default swap spreads behave under extreme oil price movements? Evidence from G7 and BRICS countries

Based on the GARCHCopula-CoVaR model, this paper explores the behavior of sovereign CDS spreads under extreme oil price movements by taking G7 and BRICS countries as examples. We reveal that the upside/downside CoVaR values of sovereign CDS spreads differ significantly from VaR values among all countries. This phenomenon illustrates that extreme oil returns are vital risks for both emerging and developed markets. Moreover, the impact of extreme oil returns on oil importers differs depending on the economic stability of each country, which is reflected in the heterogeneity of the spillover intensity.

Spillovers across European sovereign credit markets and role of surprise and uncertainty

ABSTRACTWe identify the network structure of spillovers and time-varying spillover intensities across European sovereign credit markets proposing a novel Copula-Granger causality based structural vector auto-regressive (SVAR) approach. Via the proposed framework, we examine the topological and time-varying spillover and contagion between 13 European credit markets, which is found to be consistent with crisis events. The heterogeneity in directional impacts could be useful in revealing contagion effects across the credit markets. We also find that newly proposed surprise and uncertainty indexes, among other macro-economic variables, significantly explain the spillover dynamics.

Asymmetric dependence in international currency markets

We find new channels for the transmission of shocks in international currencies, by developing a model in which shock propagations evolve from domestic stock markets, liquidity, credit risk and growth channels. We employ symmetric and asymmetric copulas to quantify joint downside risks and document that asset classes tend to experience concurrent extreme shocks. The time-varying spillover intensities cause a significant increase in cross-asset linkages during periods of high volatility, which is over and above any expected economic fundamentals, providing strong evidence of asymmetric investor induced contagion. The critical role of the credit crisis is amplified, as the beginning of an important reassessment of emerging currencies which lead to changes in the dependence structure, a revaluation and recalibration of their risk characteristics. By modelling tail risks, we also find patterns consistent with the domino effect.

Financialization and commodity excess spillovers

To identify the relationship between financialization and cross-commodity linkages, this paper proposes the framework of excess spillovers which deals with the connectedness across multiple commodity prices that cannot be explained by macroeconomic fundamentals. We document that excess spillovers rose dramatically over the 2004–2008 period and peaked during the global financial crisis. The intensity of excess spillovers is significantly positively related to the extent of participation by financial investors, and the majority of the variation in excess spillovers can be attributed to activities of managed money traders and index traders. Besides, commodity markets with a higher degree of managed money participation are more likely to be net transmitters of excess spillovers. In contrast, commodity markets with a higher degree of index fund participation are more likely to be net receivers. Overall, our analysis verifies that the increasing integration of commodity markets is the new normal led by financialization, rather than a temporary change caused by fundamentals.

The Conceptual Model and Its Empirical Studies of Sustainable Carrying Capacity of Water Resources: A Case Study of China Mainland

Based on the interactive development of new industrialization, rapid urbanization and agricultural modernization (IUAM), and from the viewpoint of interactive responses and supply-demand relationships between regional water resources carrying capacity and economic-social development, this paper puts forward the concepts and characterization methods of water resources relative intensity (WRI), water resources carrying rate (WCR) and sustainable index of water resources system (WSI). Considering the catastrophic trait of water resources carrying capacity and its contradictory relationship with WRI, a modified Catastrophe Model, which combines Catastrophe Theory and Fuzzy Mathematic Theory, was introduced to perform a multi-objective and multi-criterion comprehensive assessment of the sustainability of water resources carrying capacity (WSCC) based on benchmarking. According to these concepts and models, land WSCC for the China mainland was set as an example for empirical analysis. The results showed that at the scale of first-grade water regions, Liaohe River, Yangtze River and Pearl River regions had high WRI of domestic water, while Northwestern Rivers, Southeastern Rivers regions and Yangtze River region in some years had high WRI of eco-environment water. However, they were all in a downtrend, while the other four northern regions had low WRI in an uptrend. The agricultural WRI in Songhua River, Yellow River and Northwestern Rivers regions were relatively high and industrial WRI in Songhua River, Yangtze River and Pearl River regions were also relatively high. At the provincial scale, WSCC of urban domestic water was relatively stable, WSCC of eco-environment was obviously fluctuating, and WSCC of agriculture and industry were constantly rising. Overall, WRI in the China mainland generally decreased. The convergence of provinces with high consumption intensity of water resources and spatial spillover of WUE in high WCR provinces promotes water resources development and utilization, progressing toward doubly sustainable development. In the future, China should try to find new ideas and methods of dynamic management of regional water resources and unified management of basin water resources, building on the foundation of traditional water resources planning. Meanwhile, water resources should be considered in regional PRED (population, resources, ecology and development) systems for integrated dispatching and optimizing configuration so that the improvements of WSCC and harmonious development of water resources and regional populations, eco-environment, economy and society can be achieved.

Membership, Governance, and Lobbying in Standard-Setting Organizations

Standard-setting organizations (SSOs) are collectively self-governed industry associations, formed by innovators and implementers. They are the main organizational form to agree on and manage technical standards, which have significant positive welfare effects. SSO self-governance avoids monopolization and increases a standard's acceptance but also introduces specific issues. Constructing a model, we study the incentives of heterogeneous innovators and implementers to join a SSO, which is endogenously formed. We also studythe effect of SSO governance on membership incentives and on members' lobbying efforts to get their technologies included in the standard. We show that, depending on parameter realizations, one of four equilibrium types arises uniquely. The results can reconcile existing evidence, especially that many SSO member firms are small. We create intuition regarding firms' trade-off, which depends on the beliefs of active members to get their technologies included in the standard and the intensity of knowledge spillovers.

Spillovers, integration and causality in LME non-ferrous metal markets

We examine the interrelationships in the global base metal markets over a 22 year period 1994–2016 using a variety of econometric methods. The results demonstrate the high intensity of both return and volatility spillovers across the selected markets. Furthermore, the degree of co-movements varies among time and frequencies. The study also contributes to the contagion literature since the results revealed the increase in co-movements after the financial crisis. Aluminium is found to be the driving force, with significant influence across all methodologies. The findings show that the behaviour of the non-ferrous metals is similar to other conventional asset classes, like equities and bonds, justifying the position that metals have become an investment class.

Transition towards a green economy in Europe: Innovation and knowledge integration in the renewable energy sector

This paper investigates the fragmentation of the EU innovation system in the field of renewable energy sources (RES) by estimating the intensity and direction of knowledge spillovers over the years 1985–2010. We modify the original double exponential knowledge diffusion model proposed by Caballero and Jaffe (1993) to provide information on the degree of integration of EU countries’ RES knowledge bases and to assess how citation patterns changed over time. We show that EU RES inventors have increasingly built “on the shoulders of the other EU giants”, intensifying their citations to other member countries and decreasing those to domestic inventors. Furthermore, the EU strengthened its position as source of RES knowledge for the US. Finally, we show that this pattern is peculiar to RES, with other traditional (i.e. fossil-based) energy technologies and other radically new technologies behaving differently. Our results provide suggestive, but convincing evidence that the reduction in fragmentation emerged as a result of the EU support for RES taking mainly the form of demand-pull policies.

Adding the Online-to-Store Channel to Supply Chain: Impact of Spillover Effect

This paper investigates the impacts of an additional online-to-store channel and spillover effect on the optimal retail channel choice of a supply chain. In the presence of spillover effect, we discuss how the chosen retail channel affects the manufacturer’s profit, online retailer’s profit, and consumer surplus. Interestingly, our results reveal that there is an asymmetric effect of the online-to-store channel on the manufacturer and the retailer under spillover effect. Specifically, the retailer is better off adding the online-to-store channel if the spillover intensity is in the intermediate range, while the manufacturer is better off adding the channel if the spillover intensity is relatively high or low. Consequently, a win-win outcome for the retailer and the manufacturer will occur when adding the online-to-store channel under medium spillover intensity. We also show that the impact of online-to-store channel's introduction on consumer surplus depends on the spillover intensity. In particular, when the spillover intensity is at a moderate level, the consumer will gain more utility from buying through the online-to-store channel. Otherwise, the consumer will suffer a loss due to the online disutility cost. Overall, there is a win-win-win outcome for all channel members when the spillover intensity is not markedly positive or negative. Our findings offer valuable insights for managers and scholars by providing a better understanding of the joint functionality of online-to-store channel and spillover effect in retail channel management.

Liquidity in Asian markets: Intensity of Regional and global linkages

ABSTRACTThis study investigates cross-market linkages and the intensity of liquidity spillovers across nine Asian markets and five developed markets during 2006 to 2016. Further, the study examines the contagion caused by recent global financial crisis and its impact on the market liquidity. The direction and intensity of spillovers has been measured using forecast error variance decomposition method as suggested by Diebold and Yilmaz (2012). Among the developed markets, the United States, Germany and the United Kingdom significantly affect liquidity changes in Asian countries like India, China, Singapore and Japan. The results revels that on average, each Asian market receives 7% spillover from the global markets and 16% from regional markets. During the financial crisis, the average regional spillover increased to 20% and the global spillover increased to 11%. Thus, in Asia, the regional spillover is higher than the global spillover. Our results support the demand side hypothesis and suggest that it is the trade and portfolio investments that drive the liquidity spillovers. Our findings have potential implications for international investors, policy makers and market regulators.

Spillover modes in multiplex games: double-edged effects on cooperation and their coevolution

In recent years, there has been growing interest in studying games on multiplex networks that account for interactions across linked social contexts. However, little is known about how potential cross-context interference, or spillover, of individual behavioural strategy impact overall cooperation. We consider three plausible spillover modes, quantifying and comparing their effects on the evolution of cooperation. In our model, social interactions take place on two network layers: repeated interactions with close neighbours in a lattice, and one-shot interactions with random individuals. Spillover can occur during the learning process with accidental cross-layer strategy transfer, or during social interactions with errors in implementation. Our analytical results, using extended pair approximation, are in good agreement with extensive simulations. We find double-edged effects of spillover: increasing the intensity of spillover can promote cooperation provided cooperation is favoured in one layer, but too much spillover is detrimental. We also discover a bistability phenomenon: spillover hinders or promotes cooperation depending on initial frequencies of cooperation in each layer. Furthermore, comparing strategy combinations emerging in each spillover mode provides good indication of their co-evolutionary dynamics with cooperation. Our results make testable predictions that inspire future research, and sheds light on human cooperation across social domains.

Cross sectoral FDI spillovers and their impact on manufacturing productivity

This paper explores the relationship between FDI spillovers and productivity in manufacturing firms in five European transition countries. The novelty of our approach lies in exploring different mechanisms of horizontal spillovers and disentangling the impact of backward and forward vertical spillovers from services and manufacturing sectors. We rely on firm level data obtained from the Amadeus database and annual input-output tables. The results from dynamic panel model estimations reveal that local manufacturing firms benefit from the presence of foreign firms in upstream services, especially in the knowledge intensive services, and in downstream manufacturing sector. Demonstration effect is found to be negatively associated with domestic firms’ productivity, while worker mobility and increased competition appear to be the main channels of horizontal knowledge diffusion. The firms’ productivity is also influenced positively by human capital and intangible assets. Finally, we show that the direction and intensity of both vertical and horizontal spillovers depend on the absorptive capacity of domestic firms.

Energy Transition, Technological Spillovers and Elasticity of Substitution

Countries such as Germany and Switzerland have included the energy transition in their policy programs, setting specific targets in terms of energy production from renewables. However, the energy transition has a cost, which so far has been partly covered by subsidizing the clean production. This has produced an adverse effect, leading to overproduction in the clean sector and negative prices in the electricity spot market. An excessive subsidy, which does not takes into account technological spillovers and the elasticity of substitution, might be the cause. We use endogenous growth theory to study how the cost of the energy transition - proxied by a subsidy - is affected by these two channels. We provide a numerical solution to the model to give an insight into the magnitude of the effect considered. The main findings are: (1) technological spillovers reduce the cost of the energy transition and the subsidy becomes negative after a threshold value of relative spillover intensities; (2) a higher elasticity of substitution between the two sectors increases the cost of the energy transition.

Volatility co-movements and spillover effects within the Eurozone economies: A multivariate GARCH approach using the financial stress index

The Eurozone crisis is one the most important economic event in recent years. At its peak, the effects of the crisis have put at serious risk the outcome of the euro project, exposing the inherent weaknesses and vulnerabilities of the monetary union. As the degree of economic and financial integration of these countries is significant, we aim to investigate in details the potential cross-covariance and spillover effects between the Eurozone economies and financial markets. In order to do this, we employ financial stress indexes, as systemic risk metrics in a multivariate GARCH model. This method is able to capture markets’ dependencies and volatility spillovers and is employed on a single market level as well as on the full spectrum of Eurozone markets. The empirical results have shown the important and intensive stress transmission on banking and money markets. Moreover, the role of peripheral countries as stress transmitter is verified, but only for particular periods. The significant spillover effects from core countries are also evident, indicating their important role in the Euro Area and its overall financial stability. The “decoupling” hypothesis is empirically verified, underling the gradually decreasing intensity of spillovers between Euro Area countries. Overall, this paper exhibits the complex structure of spillover effects for Eurozone, along with a clustering effect in the most recent times.

Risk Premium Spillovers Among Stock Markets: Evidence from Higher-Order Moments

This paper investigates the volatility, skewness and kurtosis risk premium spillovers among U.S., U.K., German and Japanese stock markets. We define risk premia as the difference between risk-neutral and realized moments. Our findings highlight that during periods of stress and after 2014, cross-market and cross-moment spillovers increase, and this is mirrored by a decrease in within spillovers. We document strong bi-directional spillovers between skewness and kurtosis risk premia and emphasize the prominent role played by the volatility risk premium. Finally, we show that several macroeconomic and financial factors increase with the intensity of risk premium spillovers.

Another Look at Value and Momentum: Volatility Spillovers

This paper examines volatility interdependencies between value and momentum returns. Using U.S. data over the period 1926-2015, we document persistent periods of low and high volatility spillovers between value and momentum strategies. Moreover, we find that the intensity of the volatility spillovers may change substantially in very short periods of time and that these shifts in spillover intensity can be linked to prominent economic events and financial market turmoil. Our results further demonstrate that value returns increase and momentum returns decrease monotonically with increasing volatility spillovers between the two strategies. Given this linkage between spillover intensity and returns, we propose a simple trading strategy which utilizes a volatility spillover index for allocating funds between value and momentum portfolios. The proposed trading strategy outperforms value and momentum strategies and generates payoffs that are not subject to option-like behavior.

Spatiotemporal Fluctuations and Triggers of Ebola Virus Spillover

Abstract Because the natural reservoir of Ebola virus remains unclear and disease outbreaks in humans have occurred only sporadically over a large region, forecasting when and where Ebola spillovers are most likely to occur constitutes a continuing and urgent public health challenge. We developed a statistical modeling approach that associates 37 human or great ape Ebola spillovers since 1982 with spatiotemporally dynamic covariates including vegetative cover, human population size, and absolute and relative rainfall over 3 decades across sub-Saharan Africa. Our model (area under the curve 0.80 on test data) shows that spillover intensity is highest during transitions between wet and dry seasons; overall, high seasonal intensity occurs over much of tropical Africa; and spillover intensity is greatest at high (>1,000/km2) and very low (<100/km2) human population densities compared with intermediate levels. These results suggest strong seasonality in Ebola spillover from wild reservoirs and indicate particular times and regions for targeted surveillance.