Transmission Channels of Financial Shocks to Stock, Bond, and Asset-Backed Markets

Viola Fabbrini has collaborated as a researcher with Bocconi University, Italy, and she is a mergers and acquisition advisor in the US. Massimo Guidolin is Professor of Finance at Bocconi University and Director of Bocconi's FT-ranked MSc in Finance, where he teaches courses in financial econometrics, portfolio selection and asset pricing at a graduate level. His research has been published in internationally-refereed outlets such as the American Economic Review, the Journal of Econometrics, the Journal of Financial Economics, and the Review of Financial Studies.Manuela Pedio collaborates as a researcher with Bocconi University and has experience as an analyst in derivatives sales and trading. She is the winner of the 2014 UniCredit European Award for the Best Research Paper.

• Preface 1. The background: channels of contagion in the US financial crisis 1.1. A brief review of the sequence of events during the US financial crisis 1.2. Modeling alternative cross-market contagion channels 2. Methodology 2.1. Vector autoregressive models 2.1.1. Reduced vs. structural forms 2.1.2. Estimation 2.1.3. Impulse response functions 2.2. Markov switching vector autoregressive models 2.2.1. The model 2.2.2. Estimation 2.2.3. Generalized impulse response functions for MS models 3. The data 3.1. Asset-backed securities 3.2. The Treasury repo and Treasury bond markets 3.3. Corporate bonds 3.4. The equity market 3.5. Summary statistics 4. Estimates of single-state VAR models 4.1. Model selection 4.2. The VAR(2) model 5. Results from Markov switching models 5.1. Model selection 5.2. A three-regime MSVAR model 5.2.1. Economic interpretation of the regimes 6. Estimating and disentangling the contagion channels 6.1. A methodology to identify contagion channels 6.2. Overall patterns of financial contagion 6.3. The liquidity channel 6.4. The risk premium and the flight-to-quality channel 6.5. The correlated information channel 7. Comparing the US and European contagion experiences 7.1. A European data set 7.2. Alternative channels of contagion in the European sovereign crisis 7.3. Cross-country, cross-market shocks: did the subprime crisis spill over to Europe? 8. Conclusions References Index