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Measuring Interconnectedness between Financial Institutions with Bayesian Time-Varying Vector Autoregressions

par Geraci, Marco Valerio ;Gnabo, Jean-Yves
Référence Journal of financial and quantitative analysis, 53, 3, page (1371-1390)
Publication Publié, 2018-06

Article révisé par les pairs

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Résumé :

We 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.