Title: Asymmetric network connectedness of fears
Authors: Mattia Bevilacqua - London School of Economics (United Kingdom) [presenting]
Jozef Barunik - UTIA AV CR vvi (Czech Republic)
Radu Tunaru - University of Kent (United Kingdom)
Abstract: The purpose is to study how shocks to the forward-looking expectations of future stock prices, extracted from call and put options, create asymmetric network connections. We introduce a new measure of network connectedness, called asymmetric fear connectedness, which captures the information related to ``fear'' on both sides of the options market, and that can be a useful forward-looking systemic risk monitoring tool. The decomposed connectedness measures provide timely predictive information for near-future macroeconomic and uncertainty indicators, and they contain additional valuable information not included in the aggregate network connectedness measure. The role of a positive/negative ``fear'' transmitter/receiver emerges clearly when we focus on idiosyncratic events for financial institutions. We identify banks that are predominantly positive/negative receivers of ``fear'', as well as banks that positively/negatively transmit ``fear'' in the financial system.