Spillovers and diversification potential of bank equity returns from developed and emerging America
Jose Arreola Hernandez,
Sang Hoon Kang,
Syed Jawad Hussain Shahzad and
Seong-Min Yoon
The North American Journal of Economics and Finance, 2020, vol. 54, issue C
Abstract:
We examine the network spillovers, portfolio allocation characteristics and diversification potential of bank returns from developed and emerging America. We draw our results by applying a directional spillover index, the tail-event driven network (TENET) and nonlinear portfolio optimization methods on bank returns. We find that the spillovers and connectedness among banks from emerging America are noticeably smaller than those among banks from developed America. The largest emerging market spillover transmitters and receivers are the banks from Brazil, followed by the banks from Chile. The largest developed market spillover transmitter is JP Morgan Chase. The connectedness among banks from developed America is dominated by the banks from the USA, relative to those from Canada. The total connectedness of the emerging market banks is more intensified than that of the banks from developed America due to the effect of the COVID-19 pandemic. The portfolio optimization shows that in developed America, the largest banks from the USA are the largest risk contributors to total portfolio risk, whereas the banks from Canada contribute the least risk. In emerging America, the banks from Brazil contribute the most risk to total portfolio risk while the banks from Peru and one bank from Colombia contribute the least risk. The portfolio of banks from emerging America offers greater diversification potential and lower total portfolio allocation risk.
Keywords: Banking sector; Network; Spillover index; Portfolio optimization and diversification; Americas (search for similar items in EconPapers)
JEL-codes: C58 F36 G11 G21 R10 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940820301169
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Spillovers and diversification potential of bank equity returns from developed and emerging America (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301169
DOI: 10.1016/j.najef.2020.101219
Access Statistics for this article
The North American Journal of Economics and Finance is currently edited by Hamid Beladi
More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().