Systemic risk contagion in FX market: A frequency connectedness and network analysis

POLAT O.

Bulletin of Economic Research, cilt.71, sa.4, ss.585-598, 2019 (SSCI) identifier

  • Yayın Türü: Makale / Tam Makale
  • Cilt numarası: 71 Sayı: 4
  • Basım Tarihi: 2019
  • Doi Numarası: 10.1111/boer.12197
  • Dergi Adı: Bulletin of Economic Research
  • Derginin Tarandığı İndeksler: Social Sciences Citation Index (SSCI), Scopus
  • Sayfa Sayıları: ss.585-598
  • Anahtar Kelimeler: contagion, frequency connectedness, network analysis, spectral analysis
  • Bilecik Şeyh Edebali Üniversitesi Adresli: Evet

Özet

In this study, we analyse systemic risk contagion between a set of most actively traded currencies (EURO, JPY, GBP, AUD, CAD and CHF) by application of VAR based frequency connectedness proposed by Baruník and Křehlík. By using this novel approach, we gauge foreign exchange (FX) market connectedness in 200-day frequency band using spectral representation of variance decompositions of VAR and identify directional spillovers between the most actively traded foreign exchange rates. Dynamics of the overall spillover index reveals that the index capture well-known financial stress incidents properly. Finally, network topology of directional spillovers between currency pairs is provided for visulalization interconnectedness between them.