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Tail risk emanating from troubled European banking sectors

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  • Javed, Farrukh
  • Sabzevari, Hassan
  • Virk, Nader

Abstract

The spillover risk and systemic risk of the troubled banking sectors of Greece, Ireland, Italy, Portugal and Spain (GIIPS) for the rest of the European and the US banking sector are investigated using the conditional value-at-risk (CoVaR) framework. Our results show that the CoVaR estimates are sensitive to the choice of static and dynamic parametrization of volatility and pairwise-correlations. Nevertheless, even the conservative estimates for CoVaR and changes in it display that the magnitude of these risks, originating from GIIPS countries, is large. These risks affect banking of large European and the US banking sectors more than the rest.

Suggested Citation

  • Javed, Farrukh & Sabzevari, Hassan & Virk, Nader, 2021. "Tail risk emanating from troubled European banking sectors," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s1544612321000337
    DOI: 10.1016/j.frl.2021.101952
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    References listed on IDEAS

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    1. Dong Hwan Oh & Andrew J. Patton, 2018. "Time-Varying Systemic Risk: Evidence From a Dynamic Copula Model of CDS Spreads," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 36(2), pages 181-195, April.
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    3. Tobias Adrian & Markus K. Brunnermeier, 2016. "CoVaR," American Economic Review, American Economic Association, vol. 106(7), pages 1705-1741, July.
      • Tobias Adrian & Markus K. Brunnermeier, 2008. "CoVaR," Staff Reports 348, Federal Reserve Bank of New York.
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    4. Girardi, Giulio & Tolga Ergün, A., 2013. "Systemic risk measurement: Multivariate GARCH estimation of CoVaR," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3169-3180.
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    Cited by:

    1. Zhang, Hongwei & Wei, Shiyao & Guo, Yaoqi & Gao, Wang, 2024. "Analyzing the interconnection between rare earth market and green economy: Time-varying effects of trade policy uncertainty," Resources Policy, Elsevier, vol. 97(C).

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    More about this item

    Keywords

    Systemic risk; CoVaR; Quantile regression; DCC; Correlation;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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