In this paper, we propose a state-dependent VaR (SDVaR) to estimate spill over effects among different financial institutions. We permit spill-over effects to change depending on the state of financial markets. We show that spill-over effects only exist during crisis periods; in calm times spill over effects tend to be zero. The results highlight that spill over probabilities that do not condition on the state of financial markets may substantially over- or understate the contribution of an asset class to systemic risk. Using this approach we show that hedge funds play a major role in the transmission of shocks to the other financial institutions.
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