Journal Article

Trans-Atlantic Equity Volatility Connectedness: U.S. and European Financial Institutions, 2004–2014

Francis X. Diebold and Kamil Yilmaz

in Journal of Financial Econometrics

Volume 14, issue 1, pages 81-127
Published in print December 2015 | ISSN: 1479-8409
Published online November 2015 | e-ISSN: 1479-8417 | DOI: https://dx.doi.org/10.1093/jjfinec/nbv021
Trans-Atlantic Equity Volatility Connectedness: U.S. and European Financial Institutions, 2004–2014

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  • Multiple or Simultaneous Equation Models; Multiple Variables
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We characterize equity return volatility connectedness in the network of major American and European financial institutions, 2004–2014. Our methods enable precise characterization of the timing and evolution of key aspects of the financial crisis. First, we find that during 2007–2008 the direction of connectedness was clearly from the United States to Europe, but that connectedness became bidirectional starting in late 2008. Second, we find an unprecedented surge in directional connectedness from European to U.S. financial institutions in June 2011, consistent with massive deterioration in the health of EU financial institutions. Third, we identify particular institutions that played disproportionately important roles in generating connectedness during the U.S. and the European crises.

Keywords: network connectedness; systemic risk; systemically important financial institutions; variance decomposition; vector autoregression; C32; G21

Journal Article.  18452 words.  Illustrated.

Subjects: Multiple or Simultaneous Equation Models; Multiple Variables ; Banking

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