Tail Risk Connectedness Between US Industries

Abstract

We use the Least Absolute Shrinkage and Selection Operator (LASSO) quantile regression technique to construct and analyse the complete tail risk connectedness network of the whole US industry system. We also investigate the empirical relationship between input-output linkages and the tail risk spillovers among US industries. Our findings identify the tail-risk drivers, tail-risk takers, and tail-risk distributors among industries and confirm that the actual trade flow between industries is a major driver of their tail risk connectedness.

Keywords: Tail Risk Spillovers, Tail Risk Network, Business Linkage, Input-Output, Quantile Regression, LASSO

JEL Classification: C21, C51, C63, G10, G12, G18, G32, L14, L52