Asymmetric Network Connectedness of Fears

Abstract

This paper introduces forward-looking measures of the network connectedness of fears in the financial system, arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks. We argue that this asymmetric network structure extracted from call and put traded option prices of the main U.S. banks contains valuable information for predicting macroeconomic conditions and economic uncertainty, and it can serve as a tool for forward-looking systemic risk monitoring.

Time‐frequency dynamics between fear connectedness of stocks and alternative assets

“…In addition to these cross‐market examinations, the transmission of stock market fear across countries and regions has recently been examined by a growing number of scholars (Äijö, 2008; Badshah, 2018; Baruník, Bevilacqua, & Tunaru, 2020; BenSaïda et al, 2018; Bouri, Lien, Roubaud, & Hussain Shahzad, 2018; Bouri, Lucey, & Roubaud, 2020; Chen, 2014; Shu & Chang, 2019; Tsai, 2014; Yang, Zhou, & Cheng, 2020). Äijö (2008) examines the term structure relationship between the implied volatilities of German, Swiss, and European stock markets, demonstrating a higher association between their volatility term structures, implying that the indices examined are tightly linked to each other.…”

“…The dynamic connectedness patterns are based on rolling window estimations at a given forecast horizon. Specifically, we rely upon a 120‐day window and a 100‐day forecast horizon for these estimations, a choice which is based on the previous literature (Andrada‐Félix et al, 2018; Balli, de Bruin, Chowdhury, & Naeem, 2020; Baruník et al, 2020; Balli et al, 2017; Chowdhury, Balli, & Hassan, 2020; Hasan, Arif, Naeem, Ngo, & Taghizadeh‐Hesary, 2020; Nguyen, Naeem, Balli, Balli, & Vo, 2020).…”

Rethinking financial contagion: Information transmission mechanism during the COVID-19 pandemic

“… Aleskerov and Egorova, 2012 , Andersen and Bollerslev, 1997 , Baig and Goldfajn, 1999 , Barunik et al, 2020 , Bouri et al, 2021a , Bouri et al, 2021b , Caballero and Simsek, 2021 , Corbet et al, 2019 , Diebold and Yilmaz, 2014 , Dungey and Martin, 2007 , Doidge et al, 2008 , Flage and Aven , Flood and Rose, 2005b , Global-Preparedness-Monitoring-Board, 2019 , Goodell et al, 2020 , Huang et al, 2020 , Jung and Maderitsch, 2014 , Maderitch, 2015 , Matos et al, 2021 , Mian et al, 2017 , Yarovaya et al, 2021a , Yarovaya et al, 2016b .…”

Fat tails and network interlinkages of crude oil and cryptocurrency during the COVID-19 health crisis

“…The majority of studies, however, focus on ex-post volatility and thus describe network connections through historical measures. Baruník et al. (2020) content that forward-looking measures of volatility are more informative than backward-looking measures of volatility.…”