Decomposing Global Bank Network Connectedness: What is Common, Idiosyncratic and When?
Fuente:
arXiv
Salvato in:
| Autori principali: | , |
|---|---|
| Natura: | Preprint |
| Pubblicazione: |
2024
|
| Soggetti: | |
| Accesso online: | |
| Tags: |
Aggiungi Tag
Nessun Tag, puoi essere il primo ad aggiungerne!!
|
| _version_ | 1866915180041994240 |
|---|---|
| author | Krampe, Jonas Margaritella, Luca |
| author_facet | Krampe, Jonas Margaritella, Luca |
| contents | We propose a novel approach to estimate high-dimensional global bank network connectedness in both the time and frequency domains. By employing a factor model with sparse VAR idiosyncratic components, we decompose system-wide connectedness (SWC) into two key drivers: (i) common component shocks and (ii) idiosyncratic shocks. We also provide bootstrap confidence bands for all SWC measures. Furthermore, spectral density estimation allows us to disentangle SWC into short-, medium-, and long-term frequency responses to these shocks. We apply our methodology to two datasets of daily stock price volatilities for over 90 global banks, spanning the periods 2003-2013 and 2014-2023. Our empirical analysis reveals that SWC spikes during global crises, primarily driven by common component shocks and their short term effects. Conversely, in normal times, SWC is largely influenced by idiosyncratic shocks and medium-term dynamics. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2402_02482 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Decomposing Global Bank Network Connectedness: What is Common, Idiosyncratic and When? Krampe, Jonas Margaritella, Luca Econometrics Applications We propose a novel approach to estimate high-dimensional global bank network connectedness in both the time and frequency domains. By employing a factor model with sparse VAR idiosyncratic components, we decompose system-wide connectedness (SWC) into two key drivers: (i) common component shocks and (ii) idiosyncratic shocks. We also provide bootstrap confidence bands for all SWC measures. Furthermore, spectral density estimation allows us to disentangle SWC into short-, medium-, and long-term frequency responses to these shocks. We apply our methodology to two datasets of daily stock price volatilities for over 90 global banks, spanning the periods 2003-2013 and 2014-2023. Our empirical analysis reveals that SWC spikes during global crises, primarily driven by common component shocks and their short term effects. Conversely, in normal times, SWC is largely influenced by idiosyncratic shocks and medium-term dynamics. |
| title | Decomposing Global Bank Network Connectedness: What is Common, Idiosyncratic and When? |
| topic | Econometrics Applications |
| url | https://arxiv.org/abs/2402.02482 |