Volatility spillovers and determinants of contagion: Exchange rate and equity markets during crises

We study the hourly volatility spillover between the equity markets of New York (DJI), London (FTSE 100) and Tokyo (N225) and their exchange rates (USD, EUR, GBP and JPY) for the period of 2001 through 2013 covering the non-crises period, the global financial crisis and the euro debt crisis. First, we find a general increase in spillover between the equity and exchange rate markets during the crisis periods. Second, pure contagion (attributable to irrational investors’ behavior) and fundamental contagion (measured by macroeconomic fundamentals) explains the increased spillover between the FTSE 100, N225 to the DJI during the global financial crisis and from the exchange rate markets to the DJI during the euro debt crisis.     

A model of the topology of the bank – firm credit network and its role as channel of contagion

This paper proposes a stochastic model of a bipartite credit network between banks and the non-bank corporate sector that encapsulates basic stylized facts found in comprehensive data sets for bank-firm loans for a number of countries. When performing computational experiments with this model, we find that it shows a pronounced non-linear behavior under shocks: the default of a single unit will mostly have practically no knock-on effects, but might lead to an almost full-scale collapse of the entire system in a certain number of cases. The dependency of the overall outcome on firm characteristics like size or number of loans seems fuzzy. Distinguishing between contagion due to interbank credit and due to joint exposures to counterparty risk via loans to firms, the later channel appears more important for contagious spread of defaults.     

Modelling European sovereign bond yields with international portfolio effects

This paper proposes a portfolio choice model with two countries to evaluate the specific role of volatility and co-volatility risks in the formation of long-term European interest rates over the crisis and post-crisis periods with an active role of the European Central Bank. Long-term equilibrium rates depend crucially on the covariances between international bond yields anticipated by investors. Positively anticipated covariances amplify the phenomena of fundamental contagions related to the degradations of public finance and solvency of sovereign debt issuer, while negatively anticipated covariances amplify the phenomena of Flight-to-quality. The two-step econometric approach over the period January 2006 to September 2016 analyses 21 European market pairs in a bivariate GARCH framework. Empirical results show that the decline in German and French long-term rates from March 2011 is partially due to the decrease in both risk premium and covariances with periphery countries. These declines actually amplify the mechanisms of Flight-to-quality. Finally, a lower sensitivity of rate to volatility and co-volatility risks during the crisis period gives credit to the hypothesis of a occasional fragmentation of the European sovereign bond markets (De Santis and Stein, 2016, Ehrmann and Fratzscher, 2017).     

Unveiling investor-induced channels of financial contagion in the 2008 financial crisis using copulas

Understanding how financial crises spread is important for policy-makers and regulators in order to take adequate measures to prevent or contain the spread of these crises. This paper will test whether there was contagion of the subprime financial crisis to the European stock markets of the NYSE Euronext group (Belgium, France, the Netherlands and Portugal) and, if evidence of contagion is found, it will determine the investor-induced channels through which the crisis propagated. We will use copula models for this purpose. After assessing whether there is evidence of financial contagion in the stock markets, we will examine whether the ‘wealth constraints’ transmission mechanism prevails over the ‘portfolio rebalancing’ channel. An additional test looks at the interaction between stock and bond markets during the crisis and allows us to determine if the transmission occurred due to the ‘cross market rebalancing’ channel or the ‘flying to quality’ phenomenon. The tests suggest that (i) financial contagion is present in all analyzed stock markets, (ii) a ‘portfolio rebalancing’ channel is the most important crisis transmission mechanism, (iii) and the ‘flight-to-quality’ phenomenon is also present in all analyzed stock markets.     

净额支付清算系统中银行危机的传染过程与应对策略

随着各国商业银行通过银行间支付清算系统交易额的迅速增加,银行危机通过支付清算系统进行传染越来越受到世界各国政府的重视。本文研究了少数甚至是单个银行发生危机通过净额结算支付清算系统扩散而引起系统危机的过程和条件,分析了系统所能吸收的由银行危机而导致的最大违约资金量。最后,在本文分析的基础上,提出了我国政府为及时、有效地控制银行危机的传染过程应采取的对策和措施。     

竞争加剧背景下我国商业银行的股利分配策略

我国商业银行面临的竞争逐渐加剧。在这样的背景下,商业银行上市后,其股利分配具有非常强烈的信号传递效应,而且,商业银行的股利变动对其他银行的股价行为具有关联影响。另外,新上市银行的首次股利分配的时机选择可以表明银行质量的高低。为了争取在资本市场的竞争优势,我国商业银行上市后需要注重股利分配的信息传递效果,采取平稳的股利分配策略,新上市银行则需要尽快启动股利分配。     

The credit quality channel: Modeling contagion in the interbank market

We propose an algorithm to model contagion in the interbank market via what we term the “credit quality channel”. In existing models on contagion via interbank credit, external shocks to banks often spread to other banks only in case of a default. In contrast, shocks are transmitted also via asset devaluations and deteriorations in the credit quality in our algorithm. First, the probability of default (PD) of those banks directly affected by some shock increases. This increases the expected loss of the credit portfolios of the initially affected banks’ counterparties, thereby reducing the counterparties’ regulatory capital ratio. From a logistic regression we estimate the increase in the counterparties’ PD due to a reduced capital ratio. Their increased PDs in turn affect the counterparties’ counterparties, and so on. This coherent and flexible framework is applied to the bilateral interbank credit exposure of the entire German banking system in order to examine policy questions. For that purpose, we propose to measure the potential cost of contagion of a given shock scenario by the aggregated regulatory capital loss computed in our algorithm.     

Financial market interdependencies: A quantile regression analysis of volatility spillover

This paper investigates the degree and structure of interdependence between emerging (Asian and Latin American) and developed (USA and Japan) stock markets through the study of volatility spillovers for the period spanning from January 1, 1993 to October 13, 2010. Using both standard GARCH model and quantile regression approach, we find the evidence of significant interdependence between financial markets which may give evidence of volatility transmission. The volatility transmission is closely associated with geographical proximity as well as with crisis periods which confirm the presence of contagion. The analysis of upper and lower quantiles allows observing that the interdependence increases during bullish markets while decreases during bearish markets. Accordingly, the structure of interdependence is asymmetric for both Asian and Latin American emerging markets. These findings open up new insights for government policy makers as well as for managerial purposes.     

Contagion in international financial markets: A recursive cointegration approach

This study utilizes the recursive cointegration technique to analyze the dynamic interdependence among ten major equity markets throughout North America, Europe, Latin America and Asia. Results indicate that the international equity markets are integrated and that the degree of integration among these markets has increased over time. A scrutiny of the various crisis periods reveals that a major financial crisis had an effect of increasing the level of convergence among these markets. Moreover, the recursive cointegration technique is able to pinpoint and capture the approximate timing of a major global crisis. In addition, the study finds that the U.S., Japan, India, China, U.K., and Germany lead the other markets with the U.S. contributing most heavily to the common trend. Overall, the results indicate that profitable opportunities from portfolio diversification are limited across major markets and that these benefits are further reduced during episodes that are marked by a global financial turmoil.     

Relative risk aversion and the transmission of financial crises

We study how investor behavior affects the transmission of financial crises. If investors exhibit decreasing relative risk aversion, then negative wealth shocks increase the risk premium required to hold risky assets. We integrate this into a second generation model of currency crises which allows for contagion through changes in fundamentals. Investor behavior can be a transmission channel of financial crises, as changes in risk premia increase the coverage ratio and makes the defense of a peg less attractive for the policy maker. The feedback effect of the risk premia on the probability of devaluation also makes multiple equilibria more likely. The possible stabilization effects of capital controls and a Tobin tax on the international transmission of financial crises are also studied.