Networks in Risk Spillovers: A Multivariate GARCH Perspective
86 Pages Posted: 27 Aug 2018 Last revised: 28 Aug 2018
Date Written: August 2018
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: Suggested Citation