The Review of Economics and Statistics Vol. 104 No. 6 2022

Asymmetric Network Connectedness of Fears

Jozef Baruník¹; Mattia Bevilacqua²; Radu Tunaru³

¹ Czech Academy of Sciences, Institute of Information Theory and Automation, and Institute of Economic Studies, Charles University · ² London School of Economics · ³ University of Sussex

Abstract

This paper introduces forward-looking measures of the network connectedness of fears in the financial system arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks. We argue that this asymmetric network structure extracted from call and put traded option prices of the main U.S. banks contains valuable information for predicting macroeconomic conditions and economic uncertainty, and it can serve as a tool for forward-looking systemic risk monitoring.

DOI

10.1162/rest_a_01003

Volume

104

Issue

6

Pages

1304-1316

Language

en

Sources

openalex crossref

Cite

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