Networks in Risk Spillovers: A Multivariate GARCH Perspective

86 Pages Posted: 27 Aug 2018 Last revised: 28 Aug 2018

See all articles by Monica Billio

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Lorenzo Frattarolo

Ca Foscari University of Venice - Dipartimento di Economia

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - Research Center SAFE; Ca Foscari University of Venice

Multiple version iconThere are 2 versions of this paper

Date Written: August 2018

Abstract

We propose a spatiotemporal approach for modeling risk spillovers using time-varying proximity matrices based on observable financial networks and introduce a new bilateral specification. We study covariance stationarity and identification of the model, and analyze consistency and asymptotic normality of the quasi-maximum-likelihood estimator. We show how to isolate risk channels and we discuss how to compute target exposure able to reduce system variance. An empirical analysis on Euro-area cross-country holdings shows that Italy and Ireland are key players in spreading risk, France and Portugal are the major risk receivers, and we uncover Spain's non-trivial role as risk middleman.

Keywords: spatial GARCH; network; risk spillover; financial spillover

JEL Classification: C58, G10

Suggested Citation

Billio, Monica and Caporin, Massimiliano and Frattarolo, Lorenzo and Pelizzon, Loriana, Networks in Risk Spillovers: A Multivariate GARCH Perspective (August 2018). SAFE Working Paper No. 225. Available at SSRN: https://ssrn.com/abstract=3239369 or http://dx.doi.org/10.2139/ssrn.3239369

Monica Billio

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/billio

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Lorenzo Frattarolo

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Loriana Pelizzon (Contact Author)

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Goethe University Frankfurt - Research Center SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

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