Systemic risk contagion in FX market: A frequency connectedness and network analysis

Onur Polat

21 citations0/0 files storedBulletin of Economic Research

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Abstract

Abstract In this study, we analyse systemic risk contagion between a set of most actively traded currencies (EURO, JPY, GBP, AUD, CAD and CHF) by application of VAR based frequency connectedness proposed by Baruník and Křehlík. By using this novel approach, we gauge foreign exchange (FX) market connectedness in 200‐day frequency band using spectral representation of variance decompositions of VAR and identify directional spillovers between the most actively traded foreign exchange rates. Dynamics of the overall spillover index reveals that the index capture well‐known financial stress incidents properly. Finally, network topology of directional spillovers between currency pairs is provided for visulalization interconnectedness between them.

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References

2002Dynamic Conditional Correlation 2011Better to give than to receive: Predictive directional measurement of volatility spillovers 1996Impulse response analysis in nonlinear multivariate models 2014On the network topology of variance decompositions: Measuring the connectedness of financial firms 2002No Contagion, Only Interdependence: Measuring Stock Market Comovements 2012An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis 2008Measuring Financial Asset Return and Volatility Spillovers, with Application to Global Equity Markets 2018Measuring the Frequency Dynamics of Financial Connectedness and Systemic Risk*

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