Cyclic Downside Risk Transmission in Global Equity Markets

This paper investigates downside risk transmission among major equity markets using an expectile regression framework. Unlike quantiles, expectiles offer a tail-sensitive approach within a regression-based setting, enabling detailed analysis of downside risk dynamics. Focusing on the lower tails of daily return distributions for six major indices — the S&P 500, TSX Composite, FTSE 100, DAX 30, CSI 300, and Nikkei 225 — we align lagged returns by market closing times to use only information available before each market’s close, ensuring time-consistent analysis. This approach allows the construction of directed, expectile-based networks that capture the flow of downside risk. Our findings reveal a cyclic pattern in risk propagation, with adverse returns transmitting sequentially across regions and variable feedback effects over time. In contrast, conventional OLS-based approaches produce dense but largely undirected patterns that obscure tail-specific spillovers. Overall, our results demonstrate the value of tail-focused and information-aligned methods for understanding global risk transmission.