Networks in risk spillovers: A multivariate GARCH perspective

Monica Billio, Massimiliano Caporin, Lorenzo Frattarolo and Loriana Pelizzon

Econometrics and Statistics, 2023, vol. 28, issue C, 1-29

Abstract: A spatiotemporal approach is proposed for modeling risk spillovers using time-varying proximity matrices based on observable financial networks and a new bilateral Multivariate GARCH specification is introduced. The covariance stationarity and identification of the model is studied, developing the quasi-maximum-likelihood estimator and analysing its consistency and asymptotic normality. Further, it is shown how to isolate risk channels and it is discussed how to compute target exposure in order to reduce the system variance. An empirical analysis on Euro-area sovereign credit default swap data indicates that Italy and Ireland are key players in spreading risk, France and Portugal are major risk receivers, and Spain’s non-trivial role as a risk middleman is uncovered.

Keywords: Spatial GARCH; Network; Risk spillover; Financial spillover (search for similar items in EconPapers)
JEL-codes: C58 G10 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Networks in risk spillovers: A multivariate GARCH perspective (2020)
Working Paper: Networks in risk spillovers: A multivariate GARCH perspective (2018)
Working Paper: Networks in risk spillovers: a multivariate GARCH perspective (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosta:v:28:y:2023:i:c:p:1-29

DOI: 10.1016/j.ecosta.2020.12.003

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