Granger causality and systemic risk

Marina Balboa, Germán López-Espinosa and Antonio Rubia

Finance Research Letters, 2015, vol. 15, issue C, 49-58

Abstract: Building on the concept of Granger causality in risk in Hong et al. (2009), and focusing on an international sample of large-capitalization banks, we test for predictability in comovements in the left tails of returns of individual banks and the global system. The main results show that large individual shocks (defined as balance-sheet contractions exceeding the 1% VaR level) are a strong predictor of subsequent shocks in the global system. This evidence is particularly strong for US banks with large desks of proprietary trading. Similarly, we document strong evidence of financial vulnerabilities (exposures) to systemic shocks in US subprime creditors.

Keywords: Interconnection; Spillover; Financial contagion (search for similar items in EconPapers)
JEL-codes: C32 G01 G15 G21 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612315000768
Full text for ScienceDirect subscribers only

Related works:
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:finlet:v:15:y:2015:i:c:p:49-58

DOI: 10.1016/j.frl.2015.08.003

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().