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Spillovers in Risk of Financial Institutions

Author

Listed:
  • John Cotter

    (University College Dublin)

  • Anita Suurlaht

    (University College Dublin)

Abstract

We analyse the total and directional spillovers across a set of financial institution systemic risk state variables: credit risk, real estate market risk, interest rate risk, interbank liquidity risk and overall market risk. A multiple structural break estimation procedure is employed to detect sudden changes in the time varying spillover indices in response to major market events and policy events and policy interventions undertaken by the European Central Bank and the Bank of England. Our sample includes five European Union countries: core countries France and Germany, periphery countries Spain and Italy, and a reference country, the UK. We show that national stock markets and real estate markets have a leading role in shock transmission across selected state variables; whereas the role of the other variables reverses over the course of the crisis. Real estate market risk is also found to be mostly affected by country specific events. The shock transmission dynamics of interest rate risk and interbank liquidity risk differs for the UK and Eurozone countries; empirical results imply that interest rate changes lead changes in interbank liquidity.

Suggested Citation

  • John Cotter & Anita Suurlaht, 2018. "Spillovers in Risk of Financial Institutions," Working Papers 201805, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:201805
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    File URL: http://www.ucd.ie/geary/static/publications/workingpapers/gearywp201805.pdf
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    Cited by:

    1. Cipollini, Andrea & Mikaliunaite, Ieva, 2020. "Macro-uncertainty and financial stress spillovers in the Eurozone," Economic Modelling, Elsevier, vol. 89(C), pages 546-558.
    2. Wei-Zhen Li & Jin-Rui Zhai & Zhi-Qiang Jiang & Gang-Jin Wang & Wei-Xing Zhou, 2020. "Predicting tail events in a RIA-EVT-Copula framework," Papers 2004.03190, arXiv.org, revised Apr 2020.
    3. Ying-Ying Shen & Zhi-Qiang Jiang & Jun-Chao Ma & Gang-Jin Wang & Wei-Xing Zhou, 2020. "Sector connectedness in the Chinese stock markets," Papers 2002.09097, arXiv.org.

    More about this item

    Keywords

    macro-financial state variables; financial crisis; spillover effects; credit default swaps; real estate risk.;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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