[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23140.html
   My bibliography  Save this paper

Estimating Global Bank Network Connectedness

Author

Listed:
  • Mert Demirer
  • Francis X. Diebold
  • Laura Liu
  • Kamil Yılmaz
Abstract
We use LASSO methods to shrink, select and estimate the high-dimensional network linking the publicly-traded subset of the world's top 150 banks, 2003-2014. We characterize static network connectedness using full-sample estimation and dynamic network connectedness using rolling-window estimation. Statically, we find that global bank equity connectedness has a strong geographic component, whereas country sovereign bond connectedness does not. Dynamically, we find that equity connectedness increases during crises, with clear peaks during the Great Financial Crisis and each wave of the subsequent European Debt Crisis, and with movements coming mostly from changes in cross-country as opposed to within-country bank linkages.

Suggested Citation

  • Mert Demirer & Francis X. Diebold & Laura Liu & Kamil Yılmaz, 2017. "Estimating Global Bank Network Connectedness," NBER Working Papers 23140, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23140
    Note: AP EFG IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23140.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. repec:cup:cbooks:9780511771576 is not listed on IDEAS
    2. Acharya, Viral V. & Yorulmazer, Tanju, 2007. "Too many to fail--An analysis of time-inconsistency in bank closure policies," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 1-31, January.
    3. Shleifer, Andrei & Vishny, Robert W, 1992. "Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    4. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    5. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," The Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
    6. Billio, Monica & Getmansky, Mila & Lo, Andrew W. & Pelizzon, Loriana, 2012. "Econometric measures of connectedness and systemic risk in the finance and insurance sectors," Journal of Financial Economics, Elsevier, vol. 104(3), pages 535-559.
    7. Matteo Barigozzi & Christian Brownlees, 2019. "NETS: Network estimation for time series," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(3), pages 347-364, April.
    8. Andersen, Torben G. & Bollerslev, Tim & Christoffersen, Peter F. & Diebold, Francis X., 2013. "Financial Risk Measurement for Financial Risk Management," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1127-1220, Elsevier.
    9. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-b, March.
    10. Pietro Bonaldi & Ali Hortaçsu & Jakub Kastl, 2015. "An Empirical Analysis of Funding Costs Spillovers in the EURO-zone with Application to Systemic Risk," NBER Working Papers 21462, National Bureau of Economic Research, Inc.
    11. G.M. Constantinides & M. Harris & R. M. Stulz (ed.), 2013. "Handbook of the Economics of Finance," Handbook of the Economics of Finance, Elsevier, volume 2, number 2-a, March.
    12. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
    13. Francis X. Diebold & Kamil Yilmaz, 2009. "Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets," Economic Journal, Royal Economic Society, vol. 119(534), pages 158-171, January.
    14. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
    15. Tobias Adrian & Markus K. Brunnermeier, 2016. "CoVaR," American Economic Review, American Economic Association, vol. 106(7), pages 1705-1741, July.
      • Tobias Adrian & Markus K. Brunnermeier, 2008. "CoVaR," Staff Reports 348, Federal Reserve Bank of New York.
      • Tobias Adrian & Markus K. Brunnermeier, 2011. "CoVaR," NBER Working Papers 17454, National Bureau of Economic Research, Inc.
    16. Ana Babus, 2016. "The formation of financial networks," RAND Journal of Economics, RAND Corporation, vol. 47(2), pages 239-272, May.
    17. Rodrigo Cifuentes & Hyun Song Shin & Gianluigi Ferrucci, 2005. "Liquidity Risk and Contagion," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 556-566, 04/05.
    18. Allen, Franklin & Gale, Douglas, 1994. "Limited Market Participation and Volatility of Asset Prices," American Economic Review, American Economic Association, vol. 84(4), pages 933-955, September.
    19. Mathieu Jacomy & Tommaso Venturini & Sebastien Heymann & Mathieu Bastian, 2014. "ForceAtlas2, a Continuous Graph Layout Algorithm for Handy Network Visualization Designed for the Gephi Software," PLOS ONE, Public Library of Science, vol. 9(6), pages 1-12, June.
    20. Zou, Hui, 2006. "The Adaptive Lasso and Its Oracle Properties," Journal of the American Statistical Association, American Statistical Association, vol. 101, pages 1418-1429, December.
    21. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
    22. Daron Acemoglu & Vasco M. Carvalho & Asuman Ozdaglar & Alireza Tahbaz‐Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Econometrica, Econometric Society, vol. 80(5), pages 1977-2016, September.
    23. Giglio, Stefano & Kelly, Bryan & Pruitt, Seth, 2016. "Systemic risk and the macroeconomy: An empirical evaluation," Journal of Financial Economics, Elsevier, vol. 119(3), pages 457-471.
    24. Linda Allen & Turan G. Bali & Yi Tang, 2012. "Does Systemic Risk in the Financial Sector Predict Future Economic Downturns?," The Review of Financial Studies, Society for Financial Studies, vol. 25(10), pages 3000-3036.
    25. Easley,David & Kleinberg,Jon, 2010. "Networks, Crowds, and Markets," Cambridge Books, Cambridge University Press, number 9780521195331, January.
    26. Gorton, Gary B., 2015. "The Maze of Banking: History, Theory, Crisis," OUP Catalogue, Oxford University Press, number 9780190204839.
    27. Viral Acharya & Robert Engle & Matthew Richardson, 2012. "Capital Shortfall: A New Approach to Ranking and Regulating Systemic Risks," American Economic Review, American Economic Association, vol. 102(3), pages 59-64, May.
    28. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
    29. Sassan Alizadeh & Michael W. Brandt & Francis X. Diebold, 2002. "Range‐Based Estimation of Stochastic Volatility Models," Journal of Finance, American Finance Association, vol. 57(3), pages 1047-1091, June.
    30. Hui Zou & Trevor Hastie, 2005. "Addendum: Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(5), pages 768-768, November.
    31. Hui Zou & Trevor Hastie, 2005. "Regularization and variable selection via the elastic net," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(2), pages 301-320, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kamil Yilmaz, 2018. "Bank Volatility Connectedness in South East Asia," Koç University-TUSIAD Economic Research Forum Working Papers 1807, Koc University-TUSIAD Economic Research Forum.
    2. Andrieş, Alin Marius & Ongena, Steven & Sprincean, Nicu & Tunaru, Radu, 2022. "Risk spillovers and interconnectedness between systemically important institutions," Journal of Financial Stability, Elsevier, vol. 58(C).
    3. Francis X. Diebold & Kamil Yilmaz, 2016. "Trans-Atlantic Equity Volatility Connectedness: U.S. and European Financial Institutions, 2004–2014," Journal of Financial Econometrics, Oxford University Press, vol. 14(1), pages 81-127.
    4. Diebold, Francis X. & Yilmaz, Kamil, 2015. "Financial and Macroeconomic Connectedness: A Network Approach to Measurement and Monitoring," OUP Catalogue, Oxford University Press, number 9780199338306.
    5. Yu Chen & Jie Hu & Weiping Zhang, 2020. "Too Connected to Fail? Evidence from a Chinese Financial Risk Spillover Network," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(6), pages 78-100, November.
    6. Shi Chen & Wolfgang Karl Hardle & Brenda L'opez Cabrera, 2020. "Regularization Approach for Network Modeling of German Power Derivative Market," Papers 2009.09739, arXiv.org.
    7. Chen, Shi & Härdle, Wolfgang Karl & López Cabrera, Brenda, 2018. "Regularization Approach for Network Modeling of German Energy Market," IRTG 1792 Discussion Papers 2018-017, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    8. Uluceviz, Erhan & Yilmaz, Kamil, 2021. "Measuring real–financial connectedness in the U.S. economy," The North American Journal of Economics and Finance, Elsevier, vol. 58(C).
    9. Francis X. Diebold & Laura Liu & Kamil Yilmaz, 2018. "Commodity Connectedness," Central Banking, Analysis, and Economic Policies Book Series, in: Enrique G. Mendoza & Ernesto Pastén & Diego Saravia (ed.),Monetary Policy and Global Spillovers: Mechanisms, Effects and Policy Measures, edition 1, volume 25, chapter 4, pages 097-136, Central Bank of Chile.
    10. Mert Demirer & Umut Gokcen & Kamil Yilmaz, 2018. "Financial Sector Volatility Connectedness and Equity Returns," Koç University-TUSIAD Economic Research Forum Working Papers 1803, Koc University-TUSIAD Economic Research Forum.
    11. Matteo Barigozzi & Marc Hallin, 2017. "A network analysis of the volatility of high dimensional financial series," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 66(3), pages 581-605, April.
    12. Diebold, Francis X. & Yılmaz, Kamil, 2023. "Reprint of: On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 234(S), pages 70-90.
    13. Christian Gross & Pierre L. Siklos, 2020. "Analyzing credit risk transmission to the nonfinancial sector in Europe: A network approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 35(1), pages 61-81, January.
    14. Bastianin, Andrea & Casoli, Chiara & Galeotti, Marzio, 2023. "The connectedness of Energy Transition Metals," Energy Economics, Elsevier, vol. 128(C).
    15. Bostanci, Gorkem & Yilmaz, Kamil, 2020. "How connected is the global sovereign credit risk network?," Journal of Banking & Finance, Elsevier, vol. 113(C).
    16. Wang, Gang-Jin & Xie, Chi & Zhao, Longfeng & Jiang, Zhi-Qiang, 2018. "Volatility connectedness in the Chinese banking system: Do state-owned commercial banks contribute more?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 57(C), pages 205-230.
    17. Matteo Barigozzi & Marc Hallin, 2015. "Networks, Dynamic Factors, and the Volatility Analysis of High-Dimensional Financial Series," Working Papers ECARES ECARES 2015-34, ULB -- Universite Libre de Bruxelles.
    18. Egger, Peter H. & Li, Jie & Zhu, Jiaqing, 2023. "The network and own effects of global-systemically-important-bank designations," Journal of International Money and Finance, Elsevier, vol. 136(C).
    19. Diebold, Francis X. & Yılmaz, Kamil, 2014. "On the network topology of variance decompositions: Measuring the connectedness of financial firms," Journal of Econometrics, Elsevier, vol. 182(1), pages 119-134.
    20. Singh, Vipul Kumar & Nishant, Shreyank & Kumar, Pawan, 2018. "Dynamic and directional network connectedness of crude oil and currencies: Evidence from implied volatility," Energy Economics, Elsevier, vol. 76(C), pages 48-63.

    More about this item

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23140. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.