Dynamic Network Risk across main U.S. sectors
|Autor:||Mgr. Jan Malecha|
|Rok:||2022 - letní|
|Vedoucí:|| doc. PhDr. Jozef Baruník Ph.D.
|Typ práce:|| Diplomová
Finance, finanční trhy a bankovnictví
|Ocenění:||Ocenění DOT Award za vynikající magisterskou práci.|
|Abstrakt:||We study the effects of financial networks formed by the connectedness of stock
return volatilities within sectors of the S&P 500 Index. We test whether the
risk arising from dynamic volatility connections is priced in the cross-section
of stock returns. Separately, for each sector, we estimate the dynamic network
formed by firm-level realized volatilities from 2006 to 2018. We study how
connectedness differs across sectors. Comparing the sector results, we conclude
that there is a homogeneous pattern that describes the development of volatility
connectedness. The pattern holds across all sectors throughout the studied
period and is shaped by major financial events. We create risk factors that
attempt to assess the risk arising from dynamic volatility connections. For each
sector, we create a factor model that we test using the Fama-Macbeth regression.
The results provide evidence that the created risk factors are priced in four out
of ten sectors, that is, significant results are found in the Energy, Financials,
Industrials, and Consumer Discretionary sectors.