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Interconnectedness between stock and credit markets: The role of European G-SIBs in a multilayer perspective

Author

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  • Foglia, Matteo
  • Di Tommaso, Caterina
  • Wang, Gang-Jin
  • Pacelli, Vincenzo

Abstract

This paper investigates the interplay between two types of banking risk: market and credit. By verifying the volatility feedback loop hypothesis, we employ a multilayer information spillover network to explore information flow (risk spillover) between market and credit risks of European Global Systemically Important banks (G-SIBs). We analyse their role in transmitting market and credit risk, showing that capturing spillovers of both risks provides a more comprehensive perspective on financial risk contagion. Our findings have important implications for policymakers and risk managers, aiding in better risk assessment and timely crisis response, improving financial stability.

Suggested Citation

  • Foglia, Matteo & Di Tommaso, Caterina & Wang, Gang-Jin & Pacelli, Vincenzo, 2024. "Interconnectedness between stock and credit markets: The role of European G-SIBs in a multilayer perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    • Handle: RePEc:eee:intfin:v:91:y:2024:i:c:s1042443124000088
    DOI: 10.1016/j.intfin.2024.101942
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    More about this item

    Keywords

    Volatility feedback loop; Market risk; Credit risk; G-SIBs; Interconnected multilayer network; Financial markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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