{"id":733,"date":"2015-05-22T14:31:52","date_gmt":"2015-05-22T13:31:52","guid":{"rendered":"http:\/\/mathfinance.sns.it\/?p=733"},"modified":"2015-07-22T17:00:32","modified_gmt":"2015-07-22T16:00:32","slug":"corsi-f-lillo-f-pirino-d-2015-measuring-flight-to-quality-with-granger-causality-tail-risk-networks","status":"publish","type":"post","link":"http:\/\/mathfinance.sns.it\/index.php\/corsi-f-lillo-f-pirino-d-2015-measuring-flight-to-quality-with-granger-causality-tail-risk-networks\/","title":{"rendered":"Corsi, F., Lillo, F. and Pirino, D. (2015). Measuring Flight-to-Quality with Granger-Causality Tail Risk Networks."},"content":{"rendered":"<p><strong>Abstract<\/strong><br \/>\nWe introduce an econometric method to detect and analyze events of flight-to-quality by financial institutions. Specifically, using the recently proposed test for the detection of Granger causality in risk (Hong et al. 2009), we construct a bipartite network of systemically important banks and sovereign bonds, where the presence of a link between two nodes indicates the existence of a tail causal relation. This means that tail events in the equity variation of a bank helps in forecasting a tail event in the price variation of a bond. Inspired by a simple theoretical model of flight-to-quality, we interpret links of the bipartite networks as distressed trading of banks directed toward the sovereign debt market and we use them for defining indicators of flight-to-quality episodes. Based on the quality of the involved bonds, we distinguish different patterns of flight-to-quality in the 2006-2014 period. In particular, we document that, during the recent Eurozone crisis, banks with a considerable systemic importance have significantly impacted the sovereign debt market chasing the top-quality government bonds. Finally, an out of sample analysis shows that connectedness and centrality network metrics have a significant cross-sectional forecasting power of bond quality measures.<br \/>\n<a href=\"http:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2576078\">http:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2576078<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Abstract We introduce an econometric method to detect and analyze events of flight-to-quality by financial institutions. Specifically, using the recently proposed test for the detection of Granger causality in risk (Hong et al. 2009), we construct a bipartite network of systemically important banks and sovereign bonds, where the presence of a link between two nodes [&hellip;]<\/p>\n","protected":false},"author":11,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[11],"tags":[],"_links":{"self":[{"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/posts\/733"}],"collection":[{"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/users\/11"}],"replies":[{"embeddable":true,"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/comments?post=733"}],"version-history":[{"count":3,"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/posts\/733\/revisions"}],"predecessor-version":[{"id":773,"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/posts\/733\/revisions\/773"}],"wp:attachment":[{"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/media?parent=733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/categories?post=733"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/mathfinance.sns.it\/index.php\/wp-json\/wp\/v2\/tags?post=733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}