Connectedness and Layers Factors

Abstract

We estimate spillover effects among European sovereigns, financial, non-financial institutions when extracting global and block-specific common factors. By allowing for the presence of global and block common factors, we can evaluate spillovers when shocks are originating from global common factors, block common factors and the idiosyncratic component. In addition, this way we can dive more into the purely idiosyncratic spillover effects which are free of block-related spillovers. Our analysis allows us to visualize our findings using heatmaps and compare spillover effects during two periods, the European financial and sovereign crisis period as well as the Covid-19 period.

Publication
Working in Progress