Industry characteristics and financial risk contagion

Wan Chien Chiu, Juan Ignacio Peña, Chih Wei Wang

Research output: Contribution to journalArticlepeer-review

26 Scopus citations


This article proposes a new measure of tail risk spillover: the conditional coexceedance (CCX), defined as the number of joint occurrences of extreme negative returns in an industry, conditional on an extreme negative return in the financial sector. The empirical application provides evidence of significant volatility and tail risk spillovers from the financial sector to many real sectors in the U.S. economy from 2001 to 2011. These spillovers increase in crisis periods. The CCX in a given sector is positively related to its amount of debt financing and negatively related to its valuation and investment. Therefore, real economy sectors-which require relatively high debt financing and whose value and investment activity are relatively lower-are prime candidates for stock price volatility and depreciation in the wake of a financial sector crisis. Evidence also suggests that the higher the industry's degree of competition, the stronger the tail risk spillover from the financial sector.

Original languageEnglish
Pages (from-to)411-427
Number of pages17
JournalJournal of Banking and Finance
StatePublished - 1 Jan 2015


  • Conditional coexceedance
  • Debt financing
  • Investment
  • Tail risk
  • Valuation
  • Volatility spillover


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