Networks in Risk Spillovers: A Multivariate GARCH Perspective
63 Pages Posted: 23 Feb 2024
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Networks in Risk Spillovers: A Multivariate GARCH Perspective
Networks in Risk Spillovers: A Multivariate GARCH Perspective
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: Suggested Citation