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

SAFE Working Paper No. 20

49 Pages Posted: 22 May 2013  

Zeno Adams

University of St. Gallen - School of Finance

Roland Füss

University of St. Gallen - School of Finance

Reint Gropp

Halle Institute for Economic Research

Date Written: September 1, 2012

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.

Keywords: Risk spillovers, state-dependent sensitivity value-at-risk (SDSVaR), quantile regression, financial institutions, hedge funds

JEL Classification: G01, G10, G24

Suggested Citation

Adams, Zeno and Füss, Roland and Gropp, Reint, Spillover Effects among Financial Institutions: A State-Dependent Sensitivity Value-at-Risk Approach (September 1, 2012). SAFE Working Paper No. 20. Available at SSRN: https://ssrn.com/abstract=2267853 or http://dx.doi.org/10.2139/ssrn.2267853

Zeno Adams

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Roland Füss

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Reint Gropp (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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