Interconnectedness between stock and credit markets: The role of European G-SIBs in a multilayer perspective

Matteo Foglia, Caterina Di Tommaso, Gang-Jin Wang and Vincenzo Pacelli

Journal of International Financial Markets, Institutions and Money, 2024, vol. 91, issue C

Abstract: This paper investigates the interplay between two types of banking risk: market and credit. By verifying the volatility feedback loop hypothesis, we employ a multilayer information spillover network to explore information flow (risk spillover) between market and credit risks of European Global Systemically Important banks (G-SIBs). We analyse their role in transmitting market and credit risk, showing that capturing spillovers of both risks provides a more comprehensive perspective on financial risk contagion. Our findings have important implications for policymakers and risk managers, aiding in better risk assessment and timely crisis response, improving financial stability.

Keywords: Volatility feedback loop; Market risk; Credit risk; G-SIBs; Interconnected multilayer network; Financial markets (search for similar items in EconPapers)
JEL-codes: C32 G01 G21 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:91:y:2024:i:c:s1042443124000088

DOI: 10.1016/j.intfin.2024.101942

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