Using the CAViaR tool to estimate the value-at-risk (VaR) and the Granger causality risk test to quantify extreme risk spillovers, we propose an extreme risk spillover network for analysing the interconnectedness across financial institutions. We construct extreme risk spillover networks at 1% and 5% risk levels (which we denote 1% and 5% VaR networks) based on the daily returns of 84 publicly listed financial institutions from four sectors—banks, diversified financials, insurance and real estate—during the period 2006–2015. We find that extreme risk spillover networks have a time-lag effect. Both the static and dynamic networks show that on average the real estate and bank sectors are net senders of extreme risk spillovers and the insurance and diversified financials sectors are net recipients, which coheres with the evidence from the recent global financial crisis. The networks during the 2008–2009 financial crisis and the European sovereign debt crisis exhibited distinctive topological features that differed from those in tranquil periods. Our approach supplies new information on the interconnectedness across financial agents that will prove valuable not only to investors and hedge fund managers, but also to regulators and policy-makers.
With the continuous development of financial markets worldwide to tackle rapid changes such as climate change and global warming, there has been increasing recognition of the importance of financial time series forecasting in financial market operation and management. In this paper, we propose a new financial time series forecasting model based on the deep learning ensemble model. The model is constructed by taking advantage of a convolutional neural network (CNN), long short-term memory (LSTM) network, and the autoregressive moving average (ARMA) model. The CNN-LSTM model is introduced to model the spatiotemporal data feature, while the ARMA model is used to model the autocorrelation data feature. These models are combined in the ensemble framework to model the mixture of linear and nonlinear data features in the financial time series. The empirical results using financial time series data show that the proposed deep learning ensemble-based financial time series forecasting model achieved superior performance in terms of forecasting accuracy and robustness compared with the benchmark individual models.
1 March 2020 in International Review of Financial Analysis