Extreme risk spillovers among traditional financial and FinTech institutions: A complex network perspective

This paper investigates the extreme risk spillovers among U.S. traditional financial and FinTech institutions by applying complex network analysis methods. Dynamic extreme risk spillover networks are constructed by the approach of GARCH-Copula-CoVaR among 91 public companies for the period from January 2011 to August 2020. Empirical analyses on the topological structure of extreme risk spillover networks show that: (i) there is a sharp increase of global efficiency prior to and during the financial crisis, and a rapid decrease afterward. (ii) compared with other sectors, the insurance sector has higher scores of sector risk spillover indices in crisis periods, whereas the FinTech sector has higher scores of sector risk spillover indices in common periods, implying that these two sectors are important recipients of extreme risk spillovers. (iii) the rankings of centrality measures reveal that large diversified financials are influential senders of extreme risk spillovers, and banking institutions play crucial roles in transmitting extreme risks.(c) 2023 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.

Automated summary

This paper applies complex network analysis methods to investigate the extreme risk spillovers among U.S. traditional financial and FinTech institutions. Dynamic extreme risk spillover networks are constructed using the GARCH-Copula-CoVaR approach for 91 public companies from January 2011 to August 2020. Empirical analyses reveal that the global efficiency sharply increases prior to and during financial crises and rapidly decreases afterward. Additionally, the insurance sector shows higher sector risk spillover indices in crisis periods, while the FinTech sector demonstrates higher indices in common periods, indicating their importance as recipients of extreme risk spillovers. Furthermore, large diversified financials are influential senders of extreme risk spillovers, and banking institutions play crucial roles in transmitting extreme risks.