Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/83628 
Authors: 
Year of Publication: 
2013
Series/Report no.: 
MNB Working Papers No. 2013/3
Publisher: 
Magyar Nemzeti Bank, Budapest
Abstract: 
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.
Subjects: 
variance decomposition
factor analysis
Procrustes rotation
spillover
cross-country correlations
cross-asset
correlations
JEL: 
G15
C38
E44
Document Type: 
Working Paper

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