Detecting Statistically Significant Changes in Connectedness: A Bootstrap-based Technique

Matthew Greenwood-Nimmo, Evžen Kočenda and Viet Hoang Nguyen

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Connectedness quantifies the extent of interlinkages within economies or markets based on a network approach. Connectedness is measured by the Diebold-Yilmaz spillover index, and abrupt increases in this measure are thought to result from major events. However, formal statistical evidence of events causing such increases is scant. We develop a bootstrap-based technique to evaluate the probability that the value of the spillover index changes at a statistically significant level following an exogenously deï¬ ned event. We further show how our procedure can detect the dates of unknown events endogenously. The results of a simulation exercise support the effectiveness of our method. We revisit the original dataset from Diebold and Yilmaz’s seminal work and obtain statistical support that the spillover index increases quickly in the wake of adverse shocks. Our methodology accounts for small sample bias and is robust with respect to modifications of the pre-event period and forecast horizon.

Keywords: connectedness; spillover index; adverse shocks; impactful events; financial contagion; bootstrap-after-bootstrap procedure (search for similar items in EconPapers)
JEL-codes: C32 C58 G15 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2024-08
New Economics Papers: this item is included in nep-net and nep-sea
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Citations: View citations in EconPapers (1)

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https://cama.crawford.anu.edu.au/sites/default/fil ... ocenda_nguyen__0.pdf

Related works:
Journal Article: Detecting statistically significant changes in connectedness: A bootstrap-based technique (2024)
Working Paper: Does the Spillover Index Respond to Adverse Shocks? A Bootstrap-Based Probabilistic Analysis (2023)
Working Paper: Does the Spillover Index Respond Significantly to Systemic Shocks? A Bootstrap-Based Probabilistic Analysis (2021)
Working Paper: Does the Spillover Index Reflect Systemic Shocks? A Bootstrap-Based Probabilistic Analysis (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2024-51

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