Time-Varying Systemic Risk: Evidence From a Dynamic Copula Model of CDS Spreads
By D. Oh, Andrew J. Patton. 2018
276 citations recorded by the source corpus.
This article proposes a new class of copula-based dynamic models for high-dimensional conditional distributions, facilitating the estimation of a wide variety of measures of systemic risk. Our proposed models draw on successful ideas from the literature on modeling high-dimensional covariance matrices and on recent work on models for general time-varying distributions. Our use of copula-based models enables the estimation of the joint model in stages, greatly reducing the computational burden. We use the proposed new models to study a collection of daily credit default swap (CDS) spreads on 100 U.S. firms over the period 2006 to 2012. We find that while the probability of distress for individual firms has greatly reduced since the financial crisis of 2008–2009, the joint probability of distress (a measure of systemic risk) is substantially higher now than in the precrisis period. Supplementary materials for this article are available online.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/c7f9dbed6a5ac06f582addd40136d97f4e4793b4
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Fotios Petropoulos
- Konstantinos Nikolopoulos
- Rob J Hyndman
- Nikolaos Kourentzes
- Vassilios Assimakopoulos
- Evangelos Spiliotis
- Spyros Makridakis
- Christoph Bergmeir
In Finance
- David F. Hendry
- David E. Rapach
- Michael P. Clements
- Jennifer L. Castle
- Feng Li
- Xiaoqian Wang
- Yanfei Kang
- Allan G. Timmermann
Citations in the corpus
- Forecasting: theory and practice (2020, background): “, 2014), (ii) factor copula construction (Oh and Patton, 2018; Tan et al., 2019) that simplifies the computation, (iii) the stochastic copula autoregressive model (Almeida and Czado, 2012) that dependence is modelled by a real-valued latent variable, and (iv) covariate-”
- Asset Price Bubbles and Systemic Risk (2019, unknown): “Empirical evidence on such spirals is provided, for example, by Schnabel and Shin (2004), Adrian and Shin (2010), and Gorton and Metrick (2012).”
- New HEAVY Models for Fat-Tailed Realized Covariances and Returns (2017, unknown): “…mixed measurement dynamic factor models to describe default and loss-given-default dynamics; Andres (2014) studied score-driven models for positive random variables; and Oh and Patton (2016) studied high-dimensional factor copula models based on GAS dynamics for systemic risk measurement.”