Dynamic Connectivity and Contagion Risk Among Bank Stocks in Brazil

Mairton Nogueira Da Silva, Marcelo De Oliveira Passos, Mathias Schneid Tessmann () and Daniel De Abreu Pereira Uhr
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Mairton Nogueira Da Silva: Federal University of Pelotas – UPFel
Marcelo De Oliveira Passos: Federal University of Pelotas – UPFel
Mathias Schneid Tessmann: Brazilian Institute of Education, Development and Research – IDP
Daniel De Abreu Pereira Uhr: Federal University of Pelotas – UPFel

Computational Economics, 2025, vol. 66, issue 2, No 19, 1513-1543

Abstract: Abstract This paper investigates the dynamic connectivity and potential contagion risk among bank stocks listed on the Brazilian stock exchange (Ibovespa) between 2009 and 2022. Using a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model, we measure dynamic connectivity in the frequency domain, complemented by complex network metrics to analyze the interrelationships among banks. Our findings highlight that connectivity levels ranged from 20 to over 50%, with peaks coinciding with major economic and political events, such as the COVID-19 pandemic and the Brazilian financial crisis in 2014–2016. Short-term volatility spillovers were the most prevalent, but the pandemic caused a noticeable shift toward long-term volatility connections. The results reveal Banco Bradesco, Banco do Brasil, and Itaú-Unibanco as primary net transmitters of shocks. At the same time, Banco Pan and Santander were identified as the main receivers of market volatility. These insights are valuable for policymakers and investors in understanding the dynamics of systemic risk within the Brazilian banking sector and how external shocks propagate across the network. The study also provides a methodological contribution by combining TVP-VAR models with network science to capture the structure and evolution of financial contagion in an emerging market context.

Keywords: Dynamic connectivity; Banking network; Contagion risk; Ibovespa; TVP-VAR model; Financial network (search for similar items in EconPapers)
JEL-codes: C63 E44 G21 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-024-10740-z

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