Networks in Risk Spillovers: A Multivariate GARCH Perspective

63 Pages Posted: 23 Feb 2024

See all articles by Monica Billio

Monica Billio

University of Venice - Department of Economics; Ca Foscari University of Venice - Dipartimento di Economia

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Lorenzo Frattarolo

European Commission-Joint Research Centre

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice - Dipartimento di Economia

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Date Written: June 30, 2020

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 Multivariate GARCH specification. We study covariance stationarity and identification of the model, develop the quasi-maximum-likelihood estimator and analyze its consistency and asymptotic normality. We show how to isolate risk channels and we discuss how to compute target exposure able to reduce system variance. An empirical analysis on Euroarea bond data shows that Italy and Ireland are key players in spreading risk, France and Portugal are 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 Billio, Monica and Caporin, Massimiliano and Frattarolo, Lorenzo and Pelizzon, Loriana, Networks in Risk Spillovers: A Multivariate GARCH Perspective (June 30, 2020). Ca' Foscari University of Venice, Department of Economics Research Paper Series No. 16/2020, Available at SSRN: https://ssrn.com/abstract=3761879 or http://dx.doi.org/10.2139/ssrn.3761879

Monica Billio

University of Venice - Department of Economics ( email )

Fondamenta San Giobbe 873
Venezia 30121
Italy
+39 041 234 9170 (Phone)
+39 041 234 9176 (Fax)

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

Cannaregio 873
Venice, 30121
Italy

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

Massimiliano Caporin (Contact Author)

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Lorenzo Frattarolo

European Commission-Joint Research Centre ( email )

Joint Research Centre, European Commission, Rue du
Brussels, Brussels 1050
Belgium

Loriana Pelizzon

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

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

Leibniz Institute for Financial Research SAFE ( email )

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

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

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

Cannaregio 873
Venice, 30121
Italy

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