From Pandemic to Financial Contagion: High-Frequency Risk Metrics and Bayesian Volatility Analysis - February 2021
This is an academic journal article, and specifically an event-based study that uses intraday (hourly) log returns to quantify Conditional Value-at-Risk and MCMC stochastic volatility levels before and during the Covid-19 pandemic (January 2019–June 2020) across the stock, commodity and cryptocurrency markets.
The author's results indicate increased pandemic-induced risk exposure (using the expected shortfall measure), increasing volatility, and stronger cross-market integration. Such effects might reduce the potential benefits of cross-market hedging and hence, potentially, contribute to a global financial contagion. This in turn would impose an additional constraint in banks' risk management strategy, as well as on the national macroprudential policy framework.
From a practitioner perspective we conclude therefore that at the present time, until the crisis has played out more fully, banks follow a more rather than less risk averse asset origination and funding strategy.
by Milivoje Davidovic,
The author's results indicate increased pandemic-induced risk exposure (using the expected shortfall measure), increasing volatility, and stronger cross-market integration. Such effects might reduce the potential benefits of cross-market hedging and hence, potentially, contribute to a global financial contagion. This in turn would impose an additional constraint in banks' risk management strategy, as well as on the national macroprudential policy framework.
From a practitioner perspective we conclude therefore that at the present time, until the crisis has played out more fully, banks follow a more rather than less risk averse asset origination and funding strategy.
by Milivoje Davidovic,
Click Davidovic_From Pandemic to Financial Contagion-DM.09.02.21.pdf link to view the file.