Global, regional and country-specific components of financial market indicators: An extraction method and applications

Arbeitspapier

This paper presents a variance decomposition method - factor analysis with Procrustes rotation - that is capable of separating the global, regional and idiosyncratic components of various financial market indicators. The method is applied to indicators of five key financial markets: sovereign CDS spreads, stock indices, exchange rates, EMBI Global bond spreads and 10-year reference yields of domestic government bond markets. The results support the finding of the literature of a significant global component in most markets, but also point out the importance of regional correlations. Based on the method two practical applications are proposed: one, which is useful in the daily monitoring of financial markets to identify magnitudes of risk premium shocks of global, regional and country-specific origins; and another one, which gauges channels of risk propagation from the eurozone periphery.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: MNB Working Papers ; No. 2013/3

Classification and Topics

• Classification: Wirtschaft ; International Financial Markets ; Multiple or Simultaneous Equation Models: Classification Methods; Cluster Analysis; Principal Components; Factor Models ; Financial Markets and the Macroeconomy
• Subject: variance decomposition ; factor analysis ; Procrustes rotation ; spillover ; cross-country correlations ; cross-asset ; correlations

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kocsis, Zalán
• Event: Veröffentlichung
• (who): Magyar Nemzeti Bank
• (where): Budapest
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/83628
• Last update: 10.03.2025, 11:42 AM CET