Measuring the propagation of financial distress with Granger-causality tail risk networks

Fulvio Corsi, Fabrizio Lillo, Davide Pirino, Luca Trapin

Risultato della ricerca: Contributo in rivistaArticolo in rivista

21 Citazioni (Scopus)


Using the test of Granger-causality in tail of Hong et al. (2009), we define and construct Granger-causality tail risk networks between 33 systemically important banks (G-SIBs) and 36 sovereign bonds worldwide. Our purpose is to exploit the structure of the Granger-causality tail risk networks to identify periods of distress in financial markets and possible channels of systemic risk propagation. Combining measures of connectedness of these networks with the ratings of the sovereign bonds, we propose a flight-to-quality indicator to identify periods of turbulence in the market. Our measure clearly peaks at the onset of the European sovereign debt crisis, signaling the instability of the financial system. Finally, we use the connectedness measures of the networks to forecast the quality of sovereign bonds. We find that connectedness is a significant predictor of the cross-section of bond quality.
Lingua originaleEnglish
pagine (da-a)18-36
Numero di pagine19
RivistaJournal of Financial Stability
Stato di pubblicazionePubblicato - 2018


  • C12
  • Economics, Econometrics and Finance (all)2001 Economics, Econometrics and Finance (miscellaneous)
  • Finance
  • Financial stability
  • Flight-to-quality
  • G00
  • G01
  • G21
  • Granger-causality
  • H63
  • Illiquidity
  • Sovereign debt crisis
  • Systemic risk propagation


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