TENET: Tail-Event Driven NETwork Risk

40 Pages Posted: 24 Jul 2015 Last revised: 6 Jun 2016

See all articles by Wolfgang Karl Härdle

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute

Weining Wang

affiliation not provided to SSRN; University of York

Lining Yu

Humboldt University of Berlin

Date Written: July 9, 2015

Abstract

A system of risk factors necessarily involves systemic risk. The analysis of systemic risk is in the focus of recent econometric analysis and uses tail event and network based techniques. Here we bring tail event and network dynamics together into one context. In order to pursue such joint effects, we propose a semiparametric measure to estimate systemic interconnectedness across financial institutions based on tail-driven spillover effects in a high dimensional framework. The systemically important institutions are identified conditional on their interconnectedness structure. Methodologically, a variable selection technique in a time series setting is applied in the context of a single-index model for a generalized quantile regression framework. We could thus include more financial institutions into the analysis to measure their tail event interdependencies and, at the same time, being sensitive to non-linear relationships between them. Network analysis, its behaviour and dynamics, allows us to characterize the role of each industry group in the U. S. financial market 2007-2012. The proposed TENET-Tail Event driven NETwork technique allows us to rank the systemic risk contributions of publicly traded U.S. financial institutions.

Keywords: Systemic Risk, Systemic Risk Network, Generalized Quantile, Quantile Single-Index Regression, Value at Risk, CoVaR, Lasso

JEL Classification: G01,G18,G32,G38, C21, C51, C63

Suggested Citation

Härdle, Wolfgang Karl and Wang, Weining and Wang, Weining and Yu, Lining, TENET: Tail-Event Driven NETwork Risk (July 9, 2015). Available at SSRN: https://ssrn.com/abstract=2634627 or http://dx.doi.org/10.2139/ssrn.2634627

Wolfgang Karl Härdle (Contact Author)

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

Weining Wang

affiliation not provided to SSRN

University of York ( email )

Department of Economics and Related Studies Univer
York, YO10 5DD
United Kingdom

Lining Yu

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099
Germany

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
256
Abstract Views
1,335
Rank
216,342
PlumX Metrics