Network Factors for Idiosyncratic Volatility Spillover

93 Pages Posted: 28 Sep 2023 Last revised: 24 Mar 2024

See all articles by Belinda (Chen) Chen

Belinda (Chen) Chen

University of Illinois at Urbana-Champaign

Date Written: March 14, 2024

Abstract

I propose a multi-sector model to examine the dynamic network of idiosyncratic volatility spillover arising from input-output connections. The dynamic spillover network can be captured by two asset pricing factors: Concentration factor and Magnitude factor. The Concentration factor quantifies the degree to which a few large sectors dominate the economy’s contamination capacity, whereas the Magnitude factor measures the average probability of spillover. A higher Magnitude and a lower Concentration conditionally slow down the diversification speed of aggregate volatility, which further yields a lasting impact on aggregate consumption and cross-section of stock returns.

Keywords: Idiosyncratic Volatility Spillover, Contagion Risk, Dynamic Network Structure, Supplier Customer Chain, Cross-section of Returns

JEL Classification: C58, C67, D57, G12, G17

Suggested Citation

Chen, Chen, Network Factors for Idiosyncratic Volatility Spillover (March 14, 2024). Available at SSRN: https://ssrn.com/abstract=4579385 or http://dx.doi.org/10.2139/ssrn.4579385

Chen Chen (Contact Author)

University of Illinois at Urbana-Champaign ( email )

601 E John St
Champaign, IL Champaign 61820
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
163
Abstract Views
487
Rank
342,946
PlumX Metrics