Systemic Risk Synchronization Across European Banking and Insurance Sectors: A Time-Warping and Entropy Approach

This paper studies how systemic risk builds up and propagates among European banks and insurers, two central sectors to economic growth and to the stability of the whole financial system. Understanding their joint reaction to shocks is relevant because stronger short-run synchroniza- tion can amplify system-wide distress. Using daily prices and risk measures-volatility, Value- at-Risk, and Expected Shortfall-for the STOXX Europe 600 Banks and Insurance indices, we assess whether cross-sector linkages manifest through price co-movements or the alignment of downside risk. A dynamic time warping approach captures non-synchronous responses to common shocks. Results show that price co-movements are episodic and concentrated around crises, whereas volatility and downside risk remain persistently aligned, with Expected Shortfall displaying the strongest alignment. Granger causality and Effective Transfer Entropy confirm the existence of directional spillovers. A key implication is that macroprudential policy frameworks should adopt a joint and coordinated approach to the banking and insurance sectors.