Comprehensive Analysis of Systemic Risk in the UK: Copula Models and Spillover Dynamics in Response to External Shocks

This thesis provides a comprehensive analysis of systemic risk in the UK, focusing on the complex interactions between the financial and non-financial sectors and the effects of major external shocks, such as Brexit and the COVID-19 pandemic. The thesis is structured across three chapters, each focusing on different aspects of systemic risk in the UK. The analysis progresses from a static examination to a dynamic temporal analysis, and finally, to a high-dimensional dynamic spillover index, investigating the inter-industry spillover effects within the UK economy. Additionally, the thesis explores whether the definition of systemic risk can be broadened to include the impact of external shocks. In Chapter 2, the results indicate that the communication and consumer staples sectors are central to the UK’s industrial network, with higher nonlinear dependencies compared to other sectors. Notably, the financial sector exhibits the lowest systemic risk among the 50 companies analyzed, even at a 90% threshold, where systemic risk measures only reach 16.57%. Extending future periods for the financial sector further reduces systemic risk, with a more pronounced effect at lower thresholds. The findings of Chapter 3 indicate that government announcements related to Brexit reduced JPD values across all three systems. In contrast, COVID-19-related announcements had a more profound negative impact on systemic risk than actual case numbers. In Chapter 4, the analysis of inter-industry connections and spillover effects identifies key sectors that serve as primary transmitters or receivers of systemic risk during significant economic events. The financial and industrial sectors displayed strong interconnectedness around the Brexit referendum, indicating heightened market sensitivity. Conversely, the healthcare and energy sectors played a more prominent role during the COVID-19 pandemic. In summary, this thesis provides new insights into the measurement and analysis of systemic risk, emphasizing the importance of incorporating both internal and external factors.