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Global financial interconnectedness: A non-linear assessment of the uncertainty channel

Bertrand Candelon (), Laurent Ferrara () and Marc Joëts
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Marc Joëts: QuantCube

No GRU_2019_001, GRU Working Paper Series from City University of Hong Kong, Department of Economics and Finance, Global Research Unit

Abstract: The role of uncertainty in the global economy is now widely recognized by policy-makers but its specific effects on the international financial system are less understood. In this pa- per we assess the impact of uncertainty fluctuations on the interconnectedness within the international system of equity prices. In this respect, we extend the measure of connected- ness put forward by Diebold and Yilmaz (2009) by allowing for non-linear effects through the estimation of a non-linear Threshold VAR model whose regimes depend on the level on uncertainty. Results show that high uncertainty tends to generate more connectedness among equity indexes of a set of advanced and emerging countries. From an economic pol- icy point of view, this result suggests that in the presence of high uncertainty, an adverse financial shock in a specific country is likely to propagate more widely and more strongly to the whole financial system. This result advocates for a close real-time monitoring of uncertainty measures.

Keywords: Finance; Financial markets, Network interconnectedness, Uncertainty, Non-linear model (search for similar items in EconPapers)
JEL-codes: G15 C31 D84 (search for similar items in EconPapers)
Date: 2019-01-07
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https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232019-001%20Candelon.pdf (application/pdf)

Related works:
Working Paper: Global financial interconnectedness: A Non-Linear Assessment of the Uncertainty Channel (2018) Downloads
Working Paper: Global Financial interconnectedness: A non-linear assessment of the uncertainty channel (2018) Downloads
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2017)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2017)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2017)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2017)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2017)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2016)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2016)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2016)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2016)
Working Paper: Global Financial Interconnectedness: A nonlinear Assessment of the Uncertainty Channel (2016)
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