Detailed Information on Publication Record

ARANEDA, Axel A. and Nils BERTSCHINGER. Cross-ownership as a structural explanation for rising correlations in crisis times. arXiv:2112.04824 [q-fin.MF], 2021. Available from: https://dx.doi.org/10.48550/arXiv.2112.04824.

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Basic information
Original name	Cross-ownership as a structural explanation for rising correlations in crisis times
Authors	ARANEDA, Axel A. and Nils BERTSCHINGER.
Edition	2021.
Publisher	arXiv:2112.04824 [q-fin.MF]

Other information
Type of outcome	Research report
Confidentiality degree	is not subject to a state or trade secret
WWW	URL
Organization unit	Faculty of Economics and Administration
Doi	http://dx.doi.org/10.48550/arXiv.2112.04824
Changed by	Changed by: Mgr. Pavlína Kurková, učo 368752. Changed: 13/12/2023 09:09.

Abstract
In this paper, we examine the interlinkages among firms through a financial network where cross-holdings on both equity and debt are allowed. We relate mathematically the correlation among equities with the unconditional correlation of the assets, the values of their business assets and the sensitivity of the network, particularly the Δ-Greek. We noticed also this relation is independent of the Equities level. Besides, for the two-firms case, we analytically demonstrate that the equities correlation is always higher than the correlation of the assets; showing this issue by numerical illustrations. Finally, we study the relation between equity correlations and asset prices, where the model arrives to an increase in the former due to a fall in the assets.

Abstract

In this paper, we examine the interlinkages among firms through a financial network where cross-holdings on both equity and debt are allowed. We relate mathematically the correlation among equities with the unconditional correlation of the assets, the values of their business assets and the sensitivity of the network, particularly the Δ-Greek. We noticed also this relation is independent of the Equities level. Besides, for the two-firms case, we analytically demonstrate that the equities correlation is always higher than the correlation of the assets; showing this issue by numerical illustrations. Finally, we study the relation between equity correlations and asset prices, where the model arrives to an increase in the former due to a fall in the assets.