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Trans-Atlantic Equity Volatility Connectedness: U.S. and European Financial Institutions, 2004–2014

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  • Francis X. Diebold
  • Kamil Yilmaz

Abstract

We characterize equity return volatility connectedness in the network of major American and European financial institutions, 2004–2014. Our methods enable precise characterization of the timing and evolution of key aspects of the financial crisis. First, we find that during 2007–2008 the direction of connectedness was clearly from the United States to Europe, but that connectedness became bidirectional starting in late 2008. Second, we find an unprecedented surge in directional connectedness from European to U.S. financial institutions in June 2011, consistent with massive deterioration in the health of EU financial institutions. Third, we identify particular institutions that played disproportionately important roles in generating connectedness during the U.S. and the European crises.

Suggested Citation

  • Francis X. Diebold & Kamil Yilmaz, 2016. "Trans-Atlantic Equity Volatility Connectedness: U.S. and European Financial Institutions, 2004–2014," Journal of Financial Econometrics, Oxford University Press, vol. 14(1), pages 81-127.
    • Handle: RePEc:oup:jfinec:v:14:y:2016:i:1:p:81-127.
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    References listed on IDEAS

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    1. Black, Lamont & Correa, Ricardo & Huang, Xin & Zhou, Hao, 2016. "The systemic risk of European banks during the financial and sovereign debt crises," Journal of Banking & Finance, Elsevier, vol. 63(C), pages 107-125.
    2. Pietro Bonaldi & Ali Hortaçsu & Jakub Kastl, 2015. "An Empirical Analysis of Funding Costs Spillovers in the EURO-zone with Application to Systemic Risk," NBER Working Papers 21462, National Bureau of Economic Research, Inc.
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