Signed spillover effects building on historical decompositions

The spillover effects of interconnectedness between financial assets are decomposed
into both sources of shocks and whether they amplify or dampen volatility conditions in
the target market. We use historical decompositions to rearrange information from a
VAR which includes sources, direction and signs of effects building on the unsigned
forecast error variance decomposition approach of Diebold and Yılmaz (2009). A
spillover index based on historical decompositions has simple asymptotic properties,
permitting the derivation of analytical standard errors of the index and its components.
We apply the methodology to a panel of CDS spreads of sovereigns and financial
institutions for the period 2003-2013 and identify how these entities contribute to global
systemic risk.