Signed spillover effects building on historical decompositions

Mardi Dungey, John Harvey, Pierre Siklos and Vladimir Volkov ()
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John Harvey: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/business-and-economics
Vladimir Volkov: Tasmanian School of Business & Economics, University of Tasmania, http://www.utas.edu.au/profiles/staff/business-and-economics/vladimir-volkov

No 2017-11, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: The spillover effects of interconnectedness between financial assets is decomposed into both sources of shocks and whether they amplify or dampen volatility conditions in the target market. We use historical decompositions to rearrange information from a VAR which includes sources, direction and signs of effects building on the unsigned forecast error variance decomposition approach of Diebold and Yilmaz (2009). A spillover index based on historical decompositions has simple asymptotic properties, permitting the derivation of analytical standard errors of the index and its components. We apply the methodology to a panel of CDS spreads of sovereigns and financial institutions for the period of 2003-2013 and identify how these entities contribute to global systemic risk.

Keywords: Historical decomposition; DY Spillover; Granger Causality; Networks (search for similar items in EconPapers)
JEL-codes: C32 C51 C52 G10 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2017
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Citations: View citations in EconPapers (9)

Published by the University of Tasmania. Discussion paper 2017-11

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