Measurement of contagion in banks' equity prices
AbstractThis 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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Bibliographic InfoPaper provided by European Central Bank in its series Working Paper Series with number 0297.
Date of creation: Dec 2003
Date of revision:
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Other versions of this item:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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)
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