Cross-ownership as a structural explanation for rising correlations in crisis times
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 sensitiv...
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| Main Authors: | , |
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| Format: | Journal Article |
| Language: | English |
| Published: |
09-12-2021
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| Subjects: | |
| Online Access: | Get full text |
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| Summary: | 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 $\Delta$-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. |
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| DOI: | 10.48550/arxiv.2112.04824 |