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Tail risk emanating from troubled European banking sectors

Author

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  • Javed, Farrukh
  • Sabzevari, Hassan
  • Virk, Nader

Abstract

The spillover risk and systemic risk of the troubled banking sectors of Greece, Ireland, Italy, Portugal and Spain (GIIPS) for the rest of the European and the US banking sector are investigated using the conditional value-at-risk (CoVaR) framework. Our results show that the CoVaR estimates are sensitive to the choice of static and dynamic parametrization of volatility and pairwise-correlations. Nevertheless, even the conservative estimates for CoVaR and changes in it display that the magnitude of these risks, originating from GIIPS countries, is large. These risks affect banking of large European and the US banking sectors more than the rest.

Suggested Citation

  • Javed, Farrukh & Sabzevari, Hassan & Virk, Nader, 2021. "Tail risk emanating from troubled European banking sectors," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000337
    DOI: 10.1016/j.frl.2021.101952
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    References listed on IDEAS

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    1. Dong Hwan Oh & Andrew J. Patton, 2018. "Time-Varying Systemic Risk: Evidence From a Dynamic Copula Model of CDS Spreads," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(2), pages 181-195, April.
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    More about this item

    Keywords

    Systemic risk; CoVaR; Quantile regression; DCC; Correlation;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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