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Volatility Connectedness of Bank Stocks Across the Atlantic

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  • Kamil Yilmaz

    ()
    (Koc University)

Abstract

This paper presents an analysis of the dynamic measures of volatility connectedness of major bank stocks in the US and the EU member countries. The results show that in the early stages of the US financial crisis in 2007 and 2008, the direction of the volatility connectedness was from the US banks towards the EU banks. However, once the financial crisis became global in the last quarter of 2008, volatility connectedness became bi-directional. The surge in volatility connectedness from the EU banks to the US banks in June 2011 was unprecedented, reflecting the scale of deterioration in the state of the EU banks. Finally, the within-connectedness of the US banks fluctuated throughout our sample period, while the within-connectedness of the EU banks increased steadily since 2007, a reflection of the fact that the European debt and banking crisis has not ended yet.

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File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1402.pdf
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Bibliographic Info

Paper provided by Koc University-TUSIAD Economic Research Forum in its series Koç University-TUSIAD Economic Research Forum Working Papers with number 1402.

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Length: 38 pages
Date of creation: Feb 2014
Date of revision:
Handle: RePEc:koc:wpaper:1402

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Keywords: Risk measurement; systemic risk; connectedness; systemically important financial institutions; vector autoregression; variance decomposition;

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  1. Diebold, Francis X. & Yilmaz, Kamil, 2012. "Better to give than to receive: Predictive directional measurement of volatility spillovers," International Journal of Forecasting, Elsevier, vol. 28(1), pages 57-66.
  2. Pesaran, M. H. & Shin, Y., 1997. "Generalised Impulse Response Analysis in Linear Multivariate Models," Cambridge Working Papers in Economics 9710, Faculty of Economics, University of Cambridge.
  3. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  4. Matteo Barigozzi & Christian T. Brownlees, 2013. "Nets: Network estimation for time series," Economics Working Papers 1391, Department of Economics and Business, Universitat Pompeu Fabra.
  5. Francis X. Diebold & Kamil Yılmaz, 2011. "On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms," PIER Working Paper Archive 11-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
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