Safe Havens, Feedback Loops, and Shock Propagation in Global Asset Prices

Abstract

We create a network of bilateral correlations of changes in sovereign bond yields and individual bank equity price changes since 2000. We extract some stylized facts from this network of asset price correlations and document the clear differences in asset price correlations between safe havens and non-safe havens: safe havens, as commonly defined, have higher sovereign-sovereign, bank-bank, and bank-sovereign correlations than nonsafe havens. In a simple shock propagation model, we illustrate how these higher correlations may turn safe havens into shock propagators. While we discuss safe havens as a group, we document how the US is in a category of its own, differing significantly from the other countries including Switzerland or Japan. Separately, we find that feedback loops amplify shocks, and those emanating from bank stress more than those emanating from sovereign stress. JEL Classification Numbers: F3, F650, G1

New nonparametric measures for instantaneous and granger-causality tail co-dependence

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“…To demonstrate the performance of NCoVaR and NCoVaR-GC we choose the Euro Area (EA) financial environment. In particular, we investigate the feedback loops (after [ 24 ]) between sovereigns and banks in selected EA Member States. Feedback loops are of particular importance for policy makers and regulators as they serve as a shock transmission channel during distress times.…”

“…[ 25 ], Ohnsorge et al. [ 24 ] and EIB [ 11 ]. We furthermore argue that NCoVaR is a more conservative methodology and to a higher extent it captures the information spanned by extra confounding variables.…”

Systemically Important Bank: A Bibliometric Analysis for the Period of 2002 to 2022

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Bond yield spillovers from major advanced economies to emerging Asia

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