The authors also show that variance decompositions define weighted, directed networks, so that their connectedness measures are intimately-related to key measures of connectedness used in the network literature. Building on these insights, the authors track both average and daily time-varying connectedness of major U.S. financial institutions' stock return volatilities in recent years, including during the financial crisis of 2007-2008.
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Working Paper
On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms
September 2011
WP 11-45 - The authors propose several connectedness measures built from pieces of variance decompositions, and they argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities.