Download This PaperTackling the Volatility Paradox: Spillover Persistence and Systemic Risk
51 Pages Posted: 25 Oct 2016 Last revised: 13 Dec 2023
Date Written: September 02, 2024
Abstract
Financial losses can have persistent effects on the financial system. This paper proposes an empirical measure for the duration of these effects, Spillover Persistence. I document that Spillover Persistence is strongly correlated with financial conditions; during banking crises, Spillover Persistence is higher, whereas in the run-up phase of stock market bubbles it is lower. Lower Spillover Persistence also associates with a more fragile system, e.g., a higher probability of future crises, consistent with the volatility paradox. The results emphasize the dynamics of loss spillovers as an important dimension of systemic risk and financial constraints as a key determinant of persistence.
Keywords: Systemic Risk, Fragility, Financial Crises, Asset Price Bubbles, Fire Sales Systemic Risk, Fragility, Financial Crises, Asset Price Bubbles, Fire Sales
JEL Classification: E44, G01, G12, G20, G32
Suggested Citation: Suggested Citation
Kubitza, Christian, Tackling the Volatility Paradox: Spillover Persistence and Systemic Risk (September 02, 2024). Available at SSRN: https://ssrn.com/abstract=2858763 or http://dx.doi.org/10.2139/ssrn.2858763
Christian Kubitza (Contact Author)
European Central Bank (ECB) - Directorate General Research ( email )
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
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