Measurement of contagion in banks’ equity prices

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Measurement of contagion in banks’ equity prices

Author Info

Reint Gropp () (European Central Bank, Kaiserstrasse 28, 60311 Frankfurt am Main, Germany.)
Gerard Moerman (Erasmus University Rotterdam, The Netherlands)

Additional information is available for the following registered author(s):

Reint Eberhard Gropp

Abstract

This paper uses the co-incidence of extreme shocks to banks’ risk to examine within country and across country contagion among large EU banks. Banks’ risk is measured by the first difference of weekly distances to default and abnormal returns. Using Monte Carlo simulations, the paper examines whether the observed frequency of large shocks experienced by two or more banks simultaneously is consistent with the assumption of a multivariate normal or a student t distribution. Further, the paper proposes a simple metric, which is used to identify contagion from one bank to another and identify “systemically important” banks in the EU. JEL Classification: G21; F36; G15.

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Paper provided by European Central Bank in its series Working Paper Series with number 297.

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Length: 57 pages
Date of creation: Dec 2003
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Handle: RePEc:ecb:ecbwps:20030297

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Article
- Gropp, Reint & Moerman, Gerard, 2004. "Measurement of contagion in banks' equity prices," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 405-459, April. [Downloadable!] (restricted)

This paper has been announced in the following NEP Reports:

NEP-ALL-2005-10-04 (All new papers)
NEP-CMP-2005-10-04 (Computational Economics)
NEP-FIN-2005-10-04 (Finance)
NEP-FMK-2005-10-04 (Financial Markets)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Alessandro Rebucci, 2003. "Measuring Contagion With A Bayesian Time-Varying Coefficient Model," Working Papers. Serie AD 2003-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie). [Downloadable!]
Other versions:
- Matteo Ciccarelli & Alessandro Rebucci, 2003. "Measuring contagion with a Bayesian; time-varying coefficient model," Working Paper Series 263, European Central Bank. [Downloadable!]
- Matteo Ciccarelli & Alessandro Rebucci, 2003. "Measuring Contagion with a Bayesian Time-Varying Coefficient Model," IMF Working Papers 03/171, International Monetary Fund. [Downloadable!]
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Other versions:
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Grossman Richard S., 1993. "The Macroeconomic Consequences of Bank Failures under the National Banking System," Explorations in Economic History, Elsevier, vol. 30(3), pages 294-320, July. [Downloadable!] (restricted)
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Other versions:
- Charles W. Calomiris & Joseph R. Mason, 2001. "Causes of U.S. bank distress during the depression," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 530-554.
Reint Gropp & Anthony J. Richards, 2001. "Rating agency actions and the pricing of debt and equity of European banks: What can we infer about private sector monitoring of bank soundness?," Working Paper Series 076, European Central Bank. [Downloadable!]
Reint Gropp & Jukka Vesala & Giuseppe Vulpes, 2002. "Equity and bond market signals as leading indicators of bank fragility," Conference Series ; [Proceedings], Federal Reserve Bank of Boston. [Downloadable!]
Other versions:
- Giuseppe Vulpes & Reint Gropp & Jukka M. Vesala, 2002. "Equity and bond market signals as leading indicators of bank fragility," Working Paper Series 150, European Central Bank. [Downloadable!]
- Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March. [Downloadable!] (restricted)
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Other versions:
- Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October. [Downloadable!] (restricted)
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Bongini, Paola & Laeven, Luc & Majnoni, Giovanni, 2002. "How good is the market at assessing bank fragility? A horse race between different indicators," Journal of Banking & Finance, Elsevier, vol. 26(5), pages 1011-1028, May. [Downloadable!] (restricted)
de Vries, Casper G & Hartmann, Philipp & Straetmans, Stefan, 2001. "Asset Market Linkages in Crisis Periods," CEPR Discussion Papers 2916, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- P. Hartmann & S. Straetmans & C.G. de Vries, 2001. "Asset Market Linkages in Crisis Periods," Tinbergen Institute Discussion Papers 01-071/2, Tinbergen Institute. [Downloadable!]
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Reint Gropp & Vesala Jukka & Giuseppe Vulpes, 2004. "Market Indicators, Bank Fragility, and Indirect Market Discipline," Finance 0411015, EconWPA. [Downloadable!]
Other versions:
- Reint Gropp & Jukka Vesala & Giuseppe Vulpes, 2004. "Market indicators, bank fragility, and indirect market discipline," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 53-62. [Downloadable!]
Brian H. Boyer & Michael S. Gibson & Mico Loretan, 1997. "Pitfalls in tests for changes in correlations," International Finance Discussion Papers 597, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Hamao, Yasushi & Masulis, Ronald W & Ng, Victor, 1990. "Correlations in Price Changes and Volatility across International Stock Markets," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 3(2), pages 281-307. [Downloadable!] (restricted)
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Other versions:
- Raul Susmel & Robert F. Engle, 1992. "Hourly Volatility Spillovers Between International Equity Markets," University of California at San Diego, Economics Working Paper Series 92-08, Department of Economics, UC San Diego.
Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 16(3), pages 717-763, July. [Downloadable!] (restricted)
Other versions:
- Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2000. "A New Approach to Measuring Financial Contagion," NBER Working Papers 7913, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2001. "A new approach to measuring financial contagion," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 489-529.
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de Bandt, Olivier & Hartmann, Philipp, 2000. "Systemic Risk: A Survey," CEPR Discussion Papers 2634, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- Olivier de Bandt & Philipp Hartmann, 2000. "Systemic risk: a survey," Working Paper Series 35, European Central Bank. [Downloadable!]

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Philipp Hartmann & Stefan Straetmans & Casper G. De Vries, 2005. "Banking System Stability: A Cross-Atlantic Perspective," NBER Working Papers 11698, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Philipp Hartmann & Stefan Straetmans & Casper de Vries, 2005. "Banking system stability - a cross-Atlantic perspective," Working Paper Series 527, European Central Bank. [Downloadable!]
Theodoros Diasakos, 2008. "Comparative Statics of General Equilibrium Asset Prices," Carlo Alberto Notebooks 72, Collegio Carlo Alberto. [Downloadable!]
Li L. Ong & Srobona Mitra & Jorge A. Chan-Lau, 2007. "Contagion Risk in the International Banking System and Implications for London as a Global Financial Center," IMF Working Papers 07/74, International Monetary Fund. [Downloadable!]
Reint Gropp & Marco Lo Duca & Jukka Vesala, 2007. "Cross-Border Bank Contagion in Europe," Working Paper Series: Finance and Accounting 175, Department of Finance, Goethe University Frankfurt am Main. [Downloadable!]
Other versions:
- Reint Gropp & Marco Lo Duca & Jukka Vesala, 2006. "Cross-border bank contagion in Europe," Working Paper Series 662, European Central Bank. [Downloadable!]

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