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Dynamic Connectivity and Contagion Risk Among Bank Stocks in Brazil

Author

Listed:
  • Mairton Nogueira Da Silva

    (Federal University of Pelotas – UPFel)

  • Marcelo De Oliveira Passos

    (Federal University of Pelotas – UPFel)

  • Mathias Schneid Tessmann

    (Brazilian Institute of Education, Development and Research – IDP)

  • Daniel De Abreu Pereira Uhr

    (Federal University of Pelotas – UPFel)

Abstract

This paper investigates the dynamic connectivity and potential contagion risk among bank stocks listed on the Brazilian stock exchange (Ibovespa) between 2009 and 2022. Using a Time-Varying Parameter Vector Autoregressive (TVP-VAR) model, we measure dynamic connectivity in the frequency domain, complemented by complex network metrics to analyze the interrelationships among banks. Our findings highlight that connectivity levels ranged from 20 to over 50%, with peaks coinciding with major economic and political events, such as the COVID-19 pandemic and the Brazilian financial crisis in 2014–2016. Short-term volatility spillovers were the most prevalent, but the pandemic caused a noticeable shift toward long-term volatility connections. The results reveal Banco Bradesco, Banco do Brasil, and Itaú-Unibanco as primary net transmitters of shocks. At the same time, Banco Pan and Santander were identified as the main receivers of market volatility. These insights are valuable for policymakers and investors in understanding the dynamics of systemic risk within the Brazilian banking sector and how external shocks propagate across the network. The study also provides a methodological contribution by combining TVP-VAR models with network science to capture the structure and evolution of financial contagion in an emerging market context.

Suggested Citation

  • Mairton Nogueira Da Silva & Marcelo De Oliveira Passos & Mathias Schneid Tessmann & Daniel De Abreu Pereira Uhr, 2025. "Dynamic Connectivity and Contagion Risk Among Bank Stocks in Brazil," Computational Economics, Springer;Society for Computational Economics, vol. 66(2), pages 1513-1543, August.
    • Handle: RePEc:kap:compec:v:66:y:2025:i:2:d:10.1007_s10614-024-10740-z
    DOI: 10.1007/s10614-024-10740-z
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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