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Spillover Effects among Financial Institutions : A State-Dependent Sensitivity Value-at-Risk (SDSVaR) Approach

Zeno Adams, Roland Füss & Reint Gropp

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abstract In this paper, we develop a state-dependent sensitivity value-at-risk (SDSVaR) approach that enables us to quantify the direction, size, and duration of risk spillovers among financial institutions as a function of the state of financial markets (tranquil, normal, and volatile). Within a system of quantile regressions for four sets of major financial institutions (commercial banks, investment banks, hedge funds, and insurance companies) we show that while small during normal times, equivalent shocks lead to considerable spillover effects in volatile market periods. Commercial banks and, especially, hedge funds appear to play a major role in the transmission of shocks to other financial institutions. Using daily data, we can trace out the spillover effects over time in a set of impulse response functions and find that they reach their peak after 10 to 15 days.
   
type journal paper
   
keywords Risk spillovers; state-dependent sensitivity value-at-risk (SDSVaR); quantile regression; financial institutions; hedge funds
   
language English
kind of paper journal article
date of appearance 29-10-2012
journal Journal of Financial and Quantitative Analysis
publisher Cambridge University Press (Cambridge UK)
ISSN 0022-1090
ISSN (online) 1756-6916
page(s) forthcoming
review blind review
   
profile area SEPS - Quantitative Economic Methods
citation Adams, Z., Füss, R., & Gropp, R. (2012). Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk (SDSVaR) Approach. Journal of Financial and Quantitative Analysis, forthcoming.