Stress Spillovers among Financial Markets: Evidence from Spain



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Andrada-Félix, Julián and Fernandez-Perez, Adrian and Sosvilla-Rivero, Simón (2021) Stress Spillovers among Financial Markets: Evidence from Spain. Journal of Risk and Financial Management, 14 (11). p. 527. ISSN 1911-8074

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Using a unique database, this paper examines the interconnection among stress indicators of the Spanish financial markets during the period of January 1999 to April 2021, applying both the connectedness framework and the Time-Varying Parameter Vector Autoregressive connectedness approach. Our results suggest that 15.67% of the total variance of forecast errors was explained by shocks across the six financial market stress indices examined, indicating that the remaining 84.33% of variation was due to idiosyncratic shocks. Nevertheless, we find that stress connectedness varies over time, with a surge during periods of increasing economic and financial instability, mainly driven by high levels of pandemic and economy policy uncertainty and real economy worsening. Financial intermediaries were the main generators of stress during three out of four recent major financial crises in Spain, while their role as stress transmitters to other markets has been reduced since the onset of the COVID-19 health crisis. Our results also indicate that the COVID-19 outbreak represents a relevant event in the transmission of stress among all market segments.

Item Type:Article
Uncontrolled Keywords:Financial markets; Financial stress index; Systemic risk; Connectedness; Time-varying parameters; COVID-19.
Subjects:Social sciences > Economics > Finance
Social sciences > Economics > Stock exchanges
ID Code:77301
Deposited On:12 Apr 2023 12:14
Last Modified:19 May 2023 11:41

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