Abstract

http://ssrn.com/abstract=1681087
 
 

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Systemic Risk Measures: The Simpler the Better?


Maria Rodriguez-Moreno


University of Navarra

Juan Ignacio Peña


Universidad Carlos III de Madrid - Department of Business Administration

March 22, 2012


Abstract:     
This paper estimates and compares two groups of high-frequency market-based systemic risk measures from 2004 to 2009 using European and US data of interbank rates, stock prices and credit derivatives both at aggregate market level as well as the individual bank level. The former group of measures gauges the overall tension in the financial sector whereas second group relies on individual institution information to extract joint distress at portfolio level. We rank the measures using three criteria: i) Granger Causality tests, ii) Gonzalo and Granger metric, and iii) the correlation with an index of systemic events and policy actions. We find that the best systemic risk indicator based on aggregate market measures is the First Principal Component of a portfolio of Credit Default Swap (CDS) spreads whereas the best indicator based on individual institution’s measures is the Multivariate Densities computed from CDS spreads. These results suggest that the measures based on CDSs outperform measures based on interbank rates or stock market prices. Some implications for regulators and policymakers are discussed.

Number of Pages in PDF File: 45

Keywords: Systemic Risk, CDS, Libor spreads, CoVaR

JEL Classification: C32, G01, G15, G21

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Date posted: September 23, 2010 ; Last revised: March 24, 2012

Suggested Citation

Rodriguez-Moreno, Maria and Peña, Juan Ignacio, Systemic Risk Measures: The Simpler the Better? (March 22, 2012). Available at SSRN: http://ssrn.com/abstract=1681087 or http://dx.doi.org/10.2139/ssrn.1681087

Contact Information

Maria Rodriguez-Moreno (Contact Author)
University of Navarra ( email )
Camino del Cerro del Aguila, 3
Pamplona, Navarra 31080
Spain
Juan Ignacio Peña
Universidad Carlos III de Madrid - Department of Business Administration ( email )
Calle Madrid 126
Getafe, Madrid, Madrid 28903
Spain
34 91 624 9625 (Phone)
34 91 624 9608 (Fax)
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