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Median Response to Shocks: A Model for VaR Spillovers in East Asia

Fabrizio Cipollini (), Giampiero Gallo () and Andrea Ugolini ()

No 2016_01, Econometrics Working Papers Archive from Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti"

Abstract: We propose a procedure for analyzing financial interdependencies within an area of interest, interpreting a negative daily return in an Originator market as a VaR (i.e. the product of a volatility level and the corresponding α-quantile of a time independent probability distribution), and measuring the Median Response in the Destination market through its volatility associated with the one in the Originator and the reconstruction of the correlation structure between the two (through copula functions). We apply our methodology to nine Asian markets, varying the choice of the Originator and deriving a number of indicators which represent the importance of each market as a provider or a receiver of turbulence. Over a 1996-2015 period we confirm the role of traditionally important markets (e.g. Hong Kong or Singapore), while over a rolling three--year estimation period, we can detect rises and declines, the explosion of turbulence in the occasion of the Great Recession and the magnified role of China in the recent years.

Keywords: Value at Risk; Volatility; copula functions; Spillover; turbulence; financial crisis (search for similar items in EconPapers)
JEL-codes: C58 G01 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-sea
Date: 2016-04
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