Abstract - On the Network Topology of Variance Decompositions: Measuring the Connectedness of Financial Firms

We propose several connectedness measures built from pieces 
of variance decompositions, and we argue that they provide natural and 
insightful measures of connectedness amongfinancial asset returns 
and volatilities. We also show that variance decompositions define 
weighted, directed networks, so that our connectedness measures are 
intimately-related to key measures of connectedness used in the 
network literature. Building on these insights, we track both average 
and daily time-varying connectedness of major U.S. financial 
institutions' stock return volatilities in recent years, including 
during thefinancial crisis of 2007-2008.

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