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Firm-specific information and systemic risk

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  • Clements, A.E.
  • Liao, Y.

Abstract

Although there is substantial literature linking news to the asset return volatility of a single asset, little attention has been paid to how news influences the relationships between firms. This paper addresses this issue by examining how firm-specific scheduled and unscheduled news arrivals influence the systemic risk of individual firms based on a sample of 47 US financial institutions. Whereas negative surprises from scheduled news announcements and a higher rate of unscheduled news both increase the systemic risk of a firm, positive news surprises decrease this systemic risk. In addition, negative scheduled news and a higher rate of unscheduled news across the sector increases the total connectedness or systemic risk across the sector as a whole. These effects are magnified when the market is already in distress. The results indicate that regulators should consider more than volatility and pay attention to the news flow when monitoring systemic risk.

Suggested Citation

  • Clements, A.E. & Liao, Y., 2020. "Firm-specific information and systemic risk," Economic Modelling, Elsevier, vol. 90(C), pages 480-493.
    • Handle: RePEc:eee:ecmode:v:90:y:2020:i:c:p:480-493
    DOI: 10.1016/j.econmod.2019.11.031
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    More about this item

    Keywords

    Information flow; Volatility connectedness; Network; Information uncertainty;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G00 - Financial Economics - - General - - - General

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