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

An Empirical Model

Inbunden, Engelska, 2015

Av Massimo Guidolin, Viola Fabbrini, Manuela Pedio

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Researchers, policymakers and commentators have long debated the patterns through which adverse shocks in a few markets may quickly spread to a range of apparently disconnected financial markets causing widespread losses and turmoil. This book uses modern linear and non-linear econometric methods to characterize how shocks to the yield of risky fixed income securities, such as sub-prime asset-backed or low-credit rating sovereign bonds, are transmitted to the yields in other markets. These include equity and corporate bond markets as well as relatively risk-free fixed income securities, such as highly rated asset-backed securities and sovereign bonds from core Eurozone countries. The authors analyse and compare the results from linear and non-linear models to identify and assess four distinct contagion channels characterizing both US and European financial markets. These include the correlated information, risk premium, flight-to-liquidity, and flight-to quality channels. The results of this study support the theory that both investors and policy-makers ought to pay special attention to liquidity and commonalities in the perceptions of the probabilities of default, as channels through which financial shocks propagate.

Produktinformation

Utgivningsdatum2015-11-12
Mått140 x 216 x 18 mm
Vikt318 g
FormatInbunden
SpråkEngelska
Antal sidor131
Upplaga2016
FörlagPalgrave Macmillan
ISBN9781137561381

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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