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Persistence in Financial Connectedness and Systemic Risk

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  • Jozef Barunik
  • Michael Ellington

Abstract

This paper characterises dynamic linkages arising from shocks with heterogeneous degrees of persistence. Using frequency domain techniques, we introduce measures that identify smoothly varying links of a transitory and persistent nature. Our approach allows us to test for statistical differences in such dynamic links. We document substantial differences in transitory and persistent linkages among US financial industry volatilities, argue that they track heterogeneously persistent sources of systemic risk, and thus may serve as a useful tool for market participants.

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  • Jozef Barunik & Michael Ellington, 2020. "Persistence in Financial Connectedness and Systemic Risk," Papers 2007.07842, arXiv.org, revised Nov 2023.
    • Handle: RePEc:arx:papers:2007.07842
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    Cited by:

    1. Mykola Babiak & Jozef Barunik, 2021. "Currency Network Risk," Papers 2101.09738, arXiv.org, revised Jul 2021.
    2. Baruník, Jozef & Bevilacqua, Mattia & Faff, Robert, 2024. "Dynamic industry uncertainty networks and the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 159(C).

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