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Networks in risk spillovers: A multivariate GARCH perspective

Monica Billio (), Massimiliano Caporin (), Lorenzo Frattarolo and Loriana Pelizzon ()

No 225, SAFE Working Paper Series from Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt

Abstract: We propose a spatiotemporal approach for modeling risk spillovers using time-varying proximity matrices based on observable financial networks and introduce a new bilateral specification. We study covariance stationarity and identification of the model, and analyze consistency and asymptotic normality of the quasi-maximum-likelihood estimator. We show how to isolate risk channels and we discuss how to compute target exposure able to reduce system variance. An empirical analysis on Euro-area cross-country holdings shows that Italy and Ireland are key players in spreading risk, France and Portugal are the major risk receivers, and we uncover Spain's non-trivial role as risk middleman.

Keywords: spatial GARCH; network; risk spillover; financial spillover (search for similar items in EconPapers)
JEL-codes: C58 G10 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
Date: 2018
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Related works:
Working Paper: Networks in risk spillovers: a multivariate GARCH perspective (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:225

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