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Estimation and model-based combination of causality networks among large US banks and insurance companies

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  • Bonaccolto, Giovanni
  • Caporin, Massimiliano
  • Panzica, Roberto

Abstract

Causality is a widely-used concept in theoretical and empirical economics. The recent financial economics literature has used the standard Granger causality to detect for the presence of contemporaneous links among financial institutions, that, in turn, determine a network structure. Subsequent studies have combined the estimated networks with traditional pricing or risk measurement models to improve their fit to empirical data. In this paper, we provide two contributions. First, we show how to use a linear factor model as a device for estimating a combination of several networks that monitor the links across variables from different viewpoints. Second, we highlight the advantages of combining quantile-based methods with the Granger causality when the focus is on risk propagation. The empirical evidence supports our contributions.

Suggested Citation

  • Bonaccolto, Giovanni & Caporin, Massimiliano & Panzica, Roberto, 2019. "Estimation and model-based combination of causality networks among large US banks and insurance companies," Journal of Empirical Finance, Elsevier, vol. 54(C), pages 1-21.
    • Handle: RePEc:eee:empfin:v:54:y:2019:i:c:p:1-21
    DOI: 10.1016/j.jempfin.2019.08.008
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    More about this item

    Keywords

    Granger causality; Quantile causality; Multi-layer network; Network combination;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises

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