Essays on financial stability, systemic risk and the spillover effects of financial crises

Tsopanakis, Andreas (2014) Essays on financial stability, systemic risk and the spillover effects of financial crises. PhD thesis, University of Glasgow.

Abstract

This thesis investigates in depth several aspects of economic activity through
an aggregated metric, which aims to account for the inherent distressful characteristics
of the financial system. This work is strongly motivated by the extraordinary
evolution of the financial and economic landscape and the induced fragility within its
foundations, especially during the last years.
Chapter 1 provides an overview of the theoretical considerations on the topics
discussed in this thesis. Additionally, the motivations and a brief presentation of the
thesis contents are provided.
Chapter 2 empirically investigates the leading indicator properties of the
aggregate systemic risk indices to the real economy. In order to do that, I construct a
series of financial stress indices for 25 countries. The countries are bundled into three
groups (OECD, Asian, Latin American countries) and, apart from the national
indexes, regional and a global index are computed. In order to do this, a number of
variables from the banking sector, financial and capital markets and the foreign
exchange market of each country, have been used for the implementation of these
indicators. The indexes are successful early warning indicators, accurately capturing
previous financial stress periods, while the financial turmoil of 2007-2009 is, without
doubt, the most severe one. Forecasting exercises indicate the improved ability of
indices-enhanced models to successfully predict the evolution of economic activity.
Chapter 3 investigates the interrelations and financial interconnections of the
Eurozone economies. Financial stress indices are constructed for, both, countries and
their four most important financial markets (banking, money, equity and bond). Using
VAR models, a number of innovative conclusions are reached, such that: 1) not all
peripheral countries (and especially Greece and Portugal) should be blamed for the
crisis exacerbation 2) there is clear evidence of stronger interdependencies between
banking and bond markets and 3) a degree of segregation (in terms of financial stress
interdependence) between peripheral and core Eurozone economies.
The last essay aims to the deeper empirical investigation of potential crosscovariances
and spillover effects between the Eurozone economies and financial
markets. Full, asymmetric GARCH-BEKK models are estimated, both on a market (or
3
country) wide level and, then, with the full spectrum of Euro Area markets. In other
words, we complete an empirical examination, both “within” and “between”
Eurozone economies and markets. The results reveal a number of interesting insights:
on country wide level, there is strong volatility transmission channel from the most
heavily hit, from the crisis, economies towards the rest. Additionally, the crucial
importance and role on this transmission from the banking and bond markets is
underlined. Contrary to common wisdom, Greece is not the main propagator of
volatility uncertainty, while it is between the most important receivers of volatility
risk. The same holds for other peripheral economies, while the importance of money
market is also evident in the large, “between”, empirical approach.

• Item Type: Thesis (PhD)
• Qualification Level: Doctoral
• Subjects: H Social Sciences > HB Economic Theory; H Social Sciences > HG Finance
• Colleges/Schools: College of Social Sciences > Adam Smith Business School
• Supervisor's Name: MacDonald, Prof. Ronald
• Date of Award: 2014
• Depositing User: Mrs Marie Cairney
• Unique ID: glathesis:2014-5496
• Copyright: Copyright of this thesis is held by the author.
• Date Deposited: 12 Sep 2014 15:19
• Last Modified: 16 Oct 2017 09:04
• URI: https://theses.gla.ac.uk/id/eprint/5496