Systemic Contagion*

This paper unifies existing systemic risk measures to present a novel intersecting notion of systemic contagion which captures institutional risk transmission amplified by a distressed financial system. The paper constructs a test statistic for systemic contagion which demonstrates its systemic capacity in testing contagion under a series of numerical experiments. Using the new test the paper constructs a forward-looking directed network to empirically measure the scale of systemic contagion between leading US financial institutions. The proposed systemic contagion measure stands out as it provides timely warning signals of market crashes including that driven by the recent health-induced financial crisis.