Measuring Interconnectedness between Financial Institutions with Bayesian Time-Varying Vector Autoregressions
Accepted version
Peer-reviewed
Repository URI
Repository DOI
Change log
Authors
Geraci, MV
Gnabo, JY
Abstract
jats:pWe propose a market-based framework that exploits time-varying parameter vector autoregressions to estimate the dynamic network of financial spillover effects. We apply it to financials in the Standard & Poor’s 500 index and estimate interconnectedness at the sectoral and institutional levels. At the sectoral level, we uncover two main events in terms of interconnectedness: the Long-Term Capital Management crisis and the 2008 financial crisis. After these crisis events, we find a gradual decrease in interconnectedness, not observable using the classical rolling-window approach. At the institutional level, our framework delivers more stable interconnectedness rankings than other comparable market-based measures.</jats:p>
Description
Keywords
financial interconnectedness, time-varying parameter, systemic risk
Journal Title
Journal of Financial and Quantitative Analysis
Conference Name
Journal ISSN
0022-1090
1756-6916
1756-6916
Volume Title
53
Publisher
Cambridge University Press (CUP)
Publisher DOI
Sponsorship
Institute for New Economic Thinking (INET) (unknown)
Communauté Française de Belgique