Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk Approach
Journal
Journal of Financial and Quantitative Analysis
ISSN
0022-1090
ISSN-Digital
1756-6916
Type
journal article
Date Issued
2014-05-30
Author(s)
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.
Language
English
Keywords
Risk spillovers
state-dependent sensitivity value-at-risk (SDSVaR)
quantile regression
financial institutions
hedge funds
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Cambridge University Press
Publisher place
Cambridge UK
Volume
49
Number
3
Start page
575
End page
598
Pages
24
Subject(s)
Eprints ID
217575