Measuring Interconnectedness between Financial Institutions with Bayesian Time-Varying VARS

Marco Valerio Geraci and Jean-Yves Gnabo

Working Papers ECARES from ULB -- Universite Libre de Bruxelles

Abstract: In this paper we propose a time-varying parameter framework to estimate the dynamic network of financial spillovers. In a series of simulation exercises, we show that our framework performs better than the classical approach based on Granger causality testing over rolling windows. We apply it to all financial stocks listed in the S&P 500 and uncover a gradual decrease in interconnectedness after the crisis, which is not observable using the rolling window approach. We show that this is because the rolling window results are highly sensitive to crisis observations.

Keywords: financial interconnectedness; time-varying parameter; granger causality (search for similar items in EconPapers)
JEL-codes: C32 C51 C63 G10 G18 (search for similar items in EconPapers)
Pages: 61 p.
Date: 2015-12
New Economics Papers: this item is included in nep-ban and nep-ecm
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Citations: View citations in EconPapers (1)

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