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Modeling systemic risk with Markov switching graphical SUR models
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Bianchi, Daniele, Billio, Monica, Casarin, Roberto and Guidolin, Massimo (2019) Modeling systemic risk with Markov switching graphical SUR models. Journal of Econometrics, 210 (1). pp. 58-74. doi:10.1016/j.jeconom.2018.11.005
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Official URL: https://doi.org/10.1016/j.jeconom.2018.11.005
Abstract
We propose a Markov Switching Graphical Seemingly Unrelated Regression (MS-GSUR) model to investigate time-varying systemic risk based on a range of multi-factor asset pricing models. Methodologically, we develop a Markov Chain Monte Carlo (MCMC) scheme in which latent states are identified on the basis of a novel weighted eigenvector centrality measure. An empirical application to the constituents of the S&P100 index shows that cross-firm connectivity significantly increased over the period 1999-2003 and during the financial crisis in 2008-2009. Finally, we provide evidence that firm-level centrality does not correlate with market values and it is instead positively linked to realized financial losses.
| Item Type: | Journal Article | ||||||||||||
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| Subjects: | H Social Sciences > HB Economic Theory | ||||||||||||
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Risk -- Mathematical models -- European Union countries, Markov processes, Monte Carlo method | ||||||||||||
| Journal or Publication Title: | Journal of Econometrics | ||||||||||||
| Publisher: | Elsevier BV * North-Holland | ||||||||||||
| ISSN: | 0304-4076 | ||||||||||||
| Official Date: | May 2019 | ||||||||||||
| Dates: |
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| Volume: | 210 | ||||||||||||
| Number: | 1 | ||||||||||||
| Page Range: | pp. 58-74 | ||||||||||||
| DOI: | 10.1016/j.jeconom.2018.11.005 | ||||||||||||
| Status: | Peer Reviewed | ||||||||||||
| Publication Status: | Published | ||||||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||||||
| RIOXX Funder/Project Grant: |
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