Asymmetric Network Connectedness of Fears

Jozef Barunik; Mattia Bevilacqua; Radu Tunaru

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arXiv · 1810.12022

Asymmetric Network Connectedness of Fears

Jozef Barunik·Mattia Bevilacqua·Radu Tunaru

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Abstract

This paper introduces forward-looking measures of the network connectedness of fears in the financial system, arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks. We argue that this asymmetric network structure extracted from call and put traded option prices of the main U.S. banks contains valuable information for predicting macroeconomic conditions and economic uncertainty, and it can serve as a tool for forward-looking systemic risk monitoring.

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Jozef Barunik, Mattia Bevilacqua, Radu Tunaru. 2018-10-29. Asymmetric Network Connectedness of Fears. https://arxiv.org/abs/1810.12022

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