Quantile Connectedness: Modeling Tail Behavior in the Topology of Financial Networks

Quantile Connectedness: Modeling Tail Behavior in the Topology of Financial Networks We develop a new technique to estimate vector autoregressions with a common factor error structure by quantile regression. We apply our technique to study credit risk spillovers among a group of 17 sovereigns and their respective financial sectors between January 2006 and December 2017. We show that idiosyncratic credit risk shocks propagate much more strongly in both tails than at the conditional mean or media...