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Quantifying the Impact of EU-US "Distressed" Financial Market Integration on European Credit Supply

Tzoumas, Ioannis LU (2023) NEKP01 20231
Department of Economics
Abstract (Swedish)
This paper proposes a new method for quantifying financial integration by adapting Adrian & Brunnermeier (2016)’s ΔCoVaR to conform with standard asset pricing literature (Lewellen & Nagel 2006, Cochrane 2009). We reconcile ΔCoVaR with standard microeconomic theory (Waller & Lewarne 1994) and test for causal relationships with respect to the contagion of US acute financial shocks to the EU’s loan supply. We do this through three different vector-error-correction models, impulse response functions and forecast error variance decomposition analyses for the equity, debt and FX market respectively. We find that the debt market’s ΔCoVaR exhibits a positive direct long term relationship with the loan supply while the FX market’s a positive... (More)
This paper proposes a new method for quantifying financial integration by adapting Adrian & Brunnermeier (2016)’s ΔCoVaR to conform with standard asset pricing literature (Lewellen & Nagel 2006, Cochrane 2009). We reconcile ΔCoVaR with standard microeconomic theory (Waller & Lewarne 1994) and test for causal relationships with respect to the contagion of US acute financial shocks to the EU’s loan supply. We do this through three different vector-error-correction models, impulse response functions and forecast error variance decomposition analyses for the equity, debt and FX market respectively. We find that the debt market’s ΔCoVaR exhibits a positive direct long term relationship with the loan supply while the FX market’s a positive indirect one. We only find weak evidence for a long-term relationship of the equity market and the loan supply. In the short run only the FX market showcases any statistically significant
relationship. No reverse causality is noted. Finally, we find that financial integration behaves non-homogenously across markets. (Less)
Please use this url to cite or link to this publication:
author
Tzoumas, Ioannis LU
supervisor
organization
course
NEKP01 20231
year
type
H2 - Master's Degree (Two Years)
subject
keywords
ΔCoVaR, Loans, Credit, Risk, Integration
language
English
id
9117712
date added to LUP
2023-06-19 10:08:54
date last changed
2023-06-19 10:08:54
@misc{9117712,
  abstract     = {{This paper proposes a new method for quantifying financial integration by adapting Adrian & Brunnermeier (2016)’s ΔCoVaR to conform with standard asset pricing literature (Lewellen & Nagel 2006, Cochrane 2009). We reconcile ΔCoVaR with standard microeconomic theory (Waller & Lewarne 1994) and test for causal relationships with respect to the contagion of US acute financial shocks to the EU’s loan supply. We do this through three different vector-error-correction models, impulse response functions and forecast error variance decomposition analyses for the equity, debt and FX market respectively. We find that the debt market’s ΔCoVaR exhibits a positive direct long term relationship with the loan supply while the FX market’s a positive indirect one. We only find weak evidence for a long-term relationship of the equity market and the loan supply. In the short run only the FX market showcases any statistically significant
relationship. No reverse causality is noted. Finally, we find that financial integration behaves non-homogenously across markets.}},
  author       = {{Tzoumas, Ioannis}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Quantifying the Impact of EU-US "Distressed" Financial Market Integration on European Credit Supply}},
  year         = {{2023}},
}