Published January 1, 2023
| Version v1
Journal article
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On the network topology of variance decompositions: Measuring the connectedness of financial firms (Reprinted from Journal of Econometrics vol 182, pg 119-134, 2014)
Creators
- 1. Univ Penn, Philadelphia, PA 19104 USA
- 2. Koc Univ, Istanbul, Turkiye
Description
We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness. We also show that variance decompositions define weighted, directed networks, so that our connectedness measures are intimately related to key measures of connectedness used in the network literature. Building on these insights, we track daily time-varying connectedness of major U.S. financial institutions' stock return volatilities in recent years, with emphasis on the financial crisis of 2007-2008. (c) 2023 Published by Elsevier B.V.
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