Working Paper
On the network topology of variance decompositions: Measuring the connectedness of financial firms
Abstract: The authors propose several connectedness measures built from pieces of variance decompositions, and they argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities. The authors also show that variance decompositions define weighted, directed networks, so that their connectedness measures are intimately-related to key measures of connectedness used in the network literature. Building on these insights, the authors track both average and daily time-varying connectedness of major U.S. financial institutions' stock return volatilities in recent years, including during the financial crisis of 2007-2008.
Access Documents
File(s): File format is application/pdf https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2011/wp11-45.pdf
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2011
Number: 11-45