Risk Management Failures: What are They and When do They Happen?

Fisher College of Business Working Paper No. 2008-03-017

Charles A. Dice Center Working Paper No. 2008-18

25 Pages Posted: 6 Oct 2008  

René M. Stulz

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2008

Abstract

A large loss is not evidence of a risk management failure because a large loss can happen even if risk management is flawless. I provide a typology of risk management failures and show how various types of risk management failures occur. Because of the limitations of past data in assessing the probability and the implications of a financial crisis, I conclude that financial institutions should use scenarios for credible financial crisis threats even if they perceive the probability of such events to be extremely small.

JEL Classification: G20, G32

Suggested Citation

Stulz, René M., Risk Management Failures: What are They and When do They Happen? (October 2008). Fisher College of Business Working Paper No. 2008-03-017; Charles A. Dice Center Working Paper No. 2008-18. Available at SSRN: https://ssrn.com/abstract=1278073 or http://dx.doi.org/10.2139/ssrn.1278073

Rene M. Stulz (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://www.cob.ohio-state.edu/fin/faculty/stulz

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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