Spillovers and diversification potential of bank equity returns from developed and emerging America - Rennes School of Business Access content directly
Journal Articles The North American Journal of Economics and Finance Year : 2020

Spillovers and diversification potential of bank equity returns from developed and emerging America

Abstract

We examine the network spillovers, portfolio allocation characteristics and diversification potential of bank returns from developed and emerging America. We draw our results by applying a directional spillover index, the tail-event driven network (TENET) and nonlinear portfolio optimization methods on bank returns. We find that the spillovers and connectedness among banks from emerging America are noticeably smaller than those among banks from developed America. The largest emerging market spillover transmitters and receivers are the banks from Brazil, followed by the banks from Chile. The largest developed market spillover transmitter is JP Morgan Chase. The connectedness among banks from developed America is dominated by the banks from the USA, relative to those from Canada. The total connectedness of the emerging market banks is more intensified than that of the banks from developed America due to the effect of the COVID-19 pandemic. The portfolio optimization shows that in developed America, the largest banks from the USA are the largest risk contributors to total portfolio risk, whereas the banks from Canada contribute the least risk. In emerging America, the banks from Brazil contribute the most risk to total portfolio risk while the banks from Peru and one bank from Colombia contribute the least risk. The portfolio of banks from emerging America offers greater diversification potential and lower total portfolio allocation risk.

Dates and versions

hal-02966894 , version 1 (14-10-2020)

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Jose Arreola Hernandez, Sang Hoon Kang, Syed Jawad Hussain Shahzad, Seong-Min Yoon. Spillovers and diversification potential of bank equity returns from developed and emerging America. The North American Journal of Economics and Finance, 2020, 54, pp.101219. ⟨10.1016/j.najef.2020.101219⟩. ⟨hal-02966894⟩
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