Estimation and Model-Based Combination of Causality Networks
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Date
2017-01-31
Author
Bonaccolto, Giovanni
Caporin, Massimiliano
Panzica, Roberto Calogero
SAFE No.
165
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Abstract
Causality is a widely-used concept in theoretical and empirical economics. The recent financial economics literature has used Granger causality to detect the presence of contemporaneous links between financial institutions and, in turn, to obtain a network structure. Subsequent studies combined the estimated networks with traditional pricing or risk measurement models to improve their fit to empirical data. In this paper, we provide two contributions: we show how to use a linear factor model as a device for estimating a combination of several networks that monitor the links across variables from different viewpoints; and we demonstrate that Granger causality should be combined with quantile-based causality when the focus is on risk propagation. The empirical evidence supports the latter claim.
Research Area
Financial Institutions
Keywords
granger causality, quantile causality, multi-layer network, network combination
JEL Classification
C58, C31, C32, G01
Research Data
Topic
Corporate Finance
Saving and Borrowing
Systematic Risk
Saving and Borrowing
Systematic Risk
Relations
1
Publication Type
Working Paper
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- LIF-SAFE Working Papers [334]