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Coupling direction of the European Banking and Insurance sectors using inter-system recurrence networks

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Abstract
Modern financial systems exhibit a high degree of interdependence making it difficult in predicting. This has raise concerns on the correct identification of coupling direction in financial sectors of the economy. This study explores a “two-way” risk connection between the European banking and insurance sector based on geometrical closeness of observations. Specifically, the study looks at the inter-system recurrence networks in tracing dynamical transitions and detecting coupling direction between these sectors. The overall results shows that the banking sector is central in risk transmission compared to the insurance sector. A comprehensive discussion of the feasibility and relevance of the approach in studying systemic risk is provided

Suggested Citation

  • Peter Martey Addo, 2015. "Coupling direction of the European Banking and Insurance sectors using inter-system recurrence networks," Documents de travail du Centre d'Economie de la Sorbonne 15051, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    • Handle: RePEc:mse:cesdoc:15051
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    References listed on IDEAS

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    1. Philipp Hartmann & Stefan Straetmans & Casper de Vries, 2007. "Banking System Stability. A Cross-Atlantic Perspective," NBER Chapters, in: The Risks of Financial Institutions, pages 133-188, National Bureau of Economic Research, Inc.
    2. Addo, Peter Martey & Billio, Monica & Guégan, Dominique, 2013. "Nonlinear dynamics and recurrence plots for detecting financial crisis," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 416-435.
    3. Billio, Monica & Getmansky, Mila & Lo, Andrew W. & Pelizzon, Loriana, 2012. "Econometric measures of connectedness and systemic risk in the finance and insurance sectors," Journal of Financial Economics, Elsevier, vol. 104(3), pages 535-559.
    4. J. David Cummins & Mary A. Weiss, 2014. "Systemic Risk and The U.S. Insurance Sector," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(3), pages 489-528, September.
    5. Peter Martey Addo, 2015. "Insights to the European debt crisis using recurrence quantification and network analysis," Documents de travail du Centre d'Economie de la Sorbonne 15035, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    6. Peter Martey Addo & Philippe De Peretti & Hayette Gatfaoui & Jakob Runge, 2014. "The kiss of information theory that captures systemic risk," Documents de travail du Centre d'Economie de la Sorbonne 14069r, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne, revised Mar 2015.
    7. Slijkerman, Jan Frederik & Schoenmaker, Dirk & de Vries, Casper G., 2013. "Systemic risk and diversification across European banks and insurers," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 773-785.
    8. Peter Martey Addo, 2015. "Insights to the European debt crisis using recurrence quantification and network analysis," Post-Print halshs-01164025, HAL.
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    More about this item

    Keywords

    Financial institutions; Recurrence networks; Systemic risk; Recurrence plots;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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