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Median Response to Shocks: A Model for VaR Spillovers in East Asia

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Abstract

We propose a procedure for analyzing financial interdependencies within an area of interest, interpreting a negative daily return in an Originator market as a VaR (i.e. the product of a volatility level and the corresponding α-quantile of a time independent probability distribution), and measuring the Median Response in the Destination market through its volatility associated with the one in the Originator and the reconstruction of the correlation structure between the two (through copula functions). We apply our methodology to nine Asian markets, varying the choice of the Originator and deriving a number of indicators which represent the importance of each market as a provider or a receiver of turbulence. Over a 1996-2015 period we confirm the role of traditionally important markets (e.g. Hong Kong or Singapore), while over a rolling three--year estimation period, we can detect rises and declines, the explosion of turbulence in the occasion of the Great Recession and the magnified role of China in the recent years.

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  • Fabrizio Cipollini & Giampiero Gallo & Andrea Ugolini, 2016. "Median Response to Shocks: A Model for VaR Spillovers in East Asia," Econometrics Working Papers Archive 2016_01, Universita' degli Studi di Firenze, Dipartimento di Statistica, Informatica, Applicazioni "G. Parenti".
    • Handle: RePEc:fir:econom:wp2016_01
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    More about this item

    Keywords

    Value at Risk; Volatility; copula functions; Spillover; turbulence; financial crisis;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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