Systemic Risk and Asymmetric Responses in the Financial Industry.
Title:
Systemic Risk and Asymmetric Responses in the Financial Industry.
Author:
López-Espinosa, Germán.
ISBN:
9781475517569
Personal Author:
Physical Description:
1 online resource (39 pages)
Series:
IMF Working Papers
Contents:
Cover -- Contents -- I. Introduction -- II. Modeling Systemic Risk: CoVaR -- III. Asymmetric CoVaR -- A. Estimation and Inference -- IV. Data -- V. Downside Comovement in the U.S. Banking Industry -- A. Main Empirical Results -- B. Discussion -- C. Robustness Checks -- Bank holding companies and commercial banks -- Nonlinear models -- Returns of different representative portfolios and other considerations -- VI. Concluding Remarks -- Figures -- 1. Comparison of median estimates from the symmetric and asymmetric CoVaR models -- 2. Cross-sectional median estimates of the decile-based coefficients -- Tables -- 1. Sample descriptives for the total and the filtered samples -- 2. Descriptive statistics for economic and financial state variables -- 3. Median estimates for the symmetric and asymmetric CoVaR -- 4. Estimates across size-sorted deciles for the symmetric and asymmetric CoVaR -- 5. Estimates across liabilities-sorted deciles for the symmetric and asymmetric CoVaR -- 6. Estimates across BHCs and CBs for the symmetric and asymmetric CoVaR -- References.
Abstract:
To date, an operational measure of systemic risk capturing non-linear tail comovement between system-wide and individual bank returns has not yet been developed. This paper proposes an extension of the so-called CoVaR measure that captures the asymmetric response of the banking system to positive and negative shocks to the market-valued balance sheets of individual banks. For the median of our sample of U.S. banks, the relative impact on the system of a fall in individual market value is sevenfold that of an increase. Moreover, the downward bias in systemic risk from ignoring this asymmetric pattern increases with bank size. The conditional tail comovement between the banking system and a top decile bank which is losing market value is 5.4 larger than the unconditional tail comovement versus only 2.2 for banks in the bottom decile. The asymmetric model also produces much better estimates and fitting, and thus improves the capacity to monitor systemic risk. Our results suggest that ignoring asymmetries in tail interdependence may lead to a severe underestimation of systemic risk in a downward market.
Local Note:
Electronic reproduction. Ann Arbor, Michigan : ProQuest Ebook Central, 2017. Available via World Wide Web. Access may be limited to ProQuest Ebook Central affiliated libraries.
Genre:
Electronic Access:
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