High-dimensional CoVaR network connectedness for measuring conditional financial contagion and risk spillovers from oil markets to the G20 stock system

This paper employs a new framework, the high-dimensional conditional Value-at-Risk (CoVaR) connectedness based on the LASSO-VAR model, to explore the conditional financial contagion among a specific system conditional on extreme events occurring outside the specific system and its extreme risk spillovers to the system from the systemic perspective. Then, this paper employs the delta CoVaR and CoVaR networks to analyse the risk spillovers from oil markets to the G20 stock system from both the pairwise and systemic perspectives. From the pairwise perspective, the delta CoVaR (∆CoVaR) results show that when separating every G20 stock market from the whole market system, there are significant risk spillovers from oil to G20 stocks only during the crisis period. Further, the CoVaR connectedness results show that the G20 stock contagion presents regional characteristics and oil-related characteristics conditional on oil in extreme risk, and also verify the significant risk spillovers from the oil market to the global stock system from the systemic perspective. North American oil-related countries, including the United States of America, Canada and Mexico, are the most affected, and Asian countries have few shocks when the oil market shifts to extreme risk from a normal state. Last, this paper proposes two main policy implications after considering the empirical results