On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms

Francis Diebold and Kamil Yilmaz ()

No 17490, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities. We also show that variance decompositions define weighted, directed networks, so that our connectedness measures are intimately-related to key measures of connectedness used in the network literature. Building on these insights, we track both average and daily time-varying connectedness of major U.S. financial institutions' stock return volatilities in recent years, including during the financial crisis of 2007-2008.

JEL-codes: C3 G2 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (56)

Published as Diebold, F.X. and Yilmaz, K. (2014), "On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms," Journal of Econometrics, 182, 119-134.

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Related works:
Journal Article: On the network topology of variance decompositions: Measuring the connectedness of financial firms (2014)
Working Paper: On the network topology of variance decompositions: Measuring the connectedness of financial firms (2011)
Working Paper: On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms (2011)
Working Paper: On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms (2011)
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