Measuring the Frequency Dynamics of Financial Connectedness and Systemic Risk

0495171 - ÚTIA 2019 RIV GB eng J - Journal Article
Baruník, Jozef - Křehlík, Tomáš
Measuring the Frequency Dynamics of Financial Connectedness and Systemic Risk.
Journal of Financial Econometrics. Roč. 16, č. 2 (2018), s. 271-296. ISSN 1479-8409. E-ISSN 1479-8417
R&D Projects: GA ČR(CZ) GA16-14179S
Institutional support: RVO:67985556
Keywords : connectedness * frequency * spectral analysis * systemic risk
OECD category: Applied Economics, Econometrics
Impact factor: 1.902, year: 2018
http://library.utia.cas.cz/separaty/2018/E/barunik-0495171.pdf

We propose a new framework for measuring connectedness among financial variables that arise due to heterogeneous frequency responses to shocks. To estimate connectedness in short-, medium-, and long-term financial cycles, we introduce a framework based on the spectral representation of variance decompositions. In an empirical application, we document the rich time-frequency dynamics of volatility connectedness in U.S. financial institutions. Economically, periods in which connectedness is created at high frequencies are periods when stock markets seem to process information rapidly and calmly, and a shock to one asset in the system will have an impact mainly in the short term. When the connectedness is created at lower frequencies, it suggests that shocks are persistent and are being transmitted for longer periods.
Permanent Link: http://hdl.handle.net/11104/0288956