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Spillover effects among financial institutions within Germany and the United Kingdom

Author

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  • Ghulam, Yaseen
  • Doering, Jana

Abstract

The recent financial crisis has shown that the relatively new interconnectedness of different types of institutions leads to a transmission of risk between them, therefore increasing systemic risk. This study investigates whether and to what extent financial institutions in Germany and the United Kingdom are exposed to risk transmission. To achieve this, a state-dependent sensitivity value at risk approach is chosen. The empirical estimates suggest that hedge funds are the predominant source of risk spillovers, both in Germany and the UK, while they themselves receive very little risk spillovers. For the United Kingdom, it is shown that the magnitude of risk transmission is similar to that observed for Germany. However, UK insurance firms are less prone to spillovers from the hedge fund industry, but more affected by risks transmitted from banks, indicating possible implications for policy making. Overall, the increase in risk spillovers in volatile times is striking and suggests adapting future regulation to account for this phenomenon.

Suggested Citation

  • Ghulam, Yaseen & Doering, Jana, 2018. "Spillover effects among financial institutions within Germany and the United Kingdom," Research in International Business and Finance, Elsevier, vol. 44(C), pages 49-63.
    • Handle: RePEc:eee:riibaf:v:44:y:2018:i:c:p:49-63
    DOI: 10.1016/j.ribaf.2017.03.004
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    Cited by:

    1. ZHANG, Ping & WANG, Yiru & ZHAO, Min & YANG, Tzu-Yi, 2021. "Measuring Systemic Risk Of China'S Listed Banks," Studii Financiare (Financial Studies), Centre of Financial and Monetary Research "Victor Slavescu", vol. 25(3), pages 6-28, September.
    2. Tian, Maoxi & Guo, Fei & Niu, Rong, 2022. "Risk spillover analysis of China’s financial sectors based on a new GARCH copula quantile regression model," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
    3. Acedański, Jan & Karkowska, Renata, 2022. "Instability spillovers in the banking sector: A spatial econometrics approach," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    4. Zhiwei Zhang & Dayong Zhang & Fei Wu & Qiang Ji, 2021. "Systemic risk in the Chinese financial system: A copula‐based network approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2044-2063, April.
    5. Foglia, Matteo & Angelini, Eliana, 2020. "From me to you: Measuring connectedness between Eurozone financial institutions," Research in International Business and Finance, Elsevier, vol. 54(C).
    6. Zhao, Hong & Li, Jiayi & Lei, Yiqing & Zhou, Mingming, 2022. "Risk spillover of banking across regions: Evidence from the belt and road countries," Emerging Markets Review, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Risk spillovers; Quantile regression; Financial institutions; Hedge funds; State-dependent sensitivity value at risk;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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