Measuring Global Systemic Risk: What are Markets Saying About Risk?

Posted: 21 May 2019

See all articles by Rodney N Sullivan

Rodney N Sullivan

AQR Capital Management, LLC

Steven P. Peterson

Virginia Retirement System (VRS)

David T. Waltenbaugh

Virginia Retirement System (VRS)

Date Written: February 1, 2010

Abstract

Extreme market movements, especially in recent years, prompt our efforts to better understand the complexities of market dynamics. This paper seeks a better understanding of the features that characterize market environments through time. Specifically, we first demonstrate how market distress impacts return distributions. We then propose a global systemic risk indicator that jointly connects market conditions across asset classes using a multivariate failure model. The systemic risk barometer we devise determines how a set of complex, interconnected attributes coordinate in a way that describes turbulent market environments and the likelihood that markets are either in or entering a crisis phase. By combining high frequency information that measure changes in key variables across time and across markets, our risk hazard model yields valuable insight into the changing nature of market risks over time both within and across markets.

Suggested Citation

Sullivan, Rodney N and Peterson, Steven P. and Waltenbaugh, David T., Measuring Global Systemic Risk: What are Markets Saying About Risk? (February 1, 2010). Journal of Portfolio Management, Vol. 37, No. 1, Fall 2010. Available at SSRN: https://ssrn.com/abstract=1522232

Rodney N Sullivan (Contact Author)

AQR Capital Management, LLC ( email )

Two Greenwich Plza
Greenwich, CT 06830
United States

HOME PAGE: http://www.aqr.com/Home.aspx

Steven P. Peterson

Virginia Retirement System (VRS) ( email )

VA
United States

David T. Waltenbaugh

Virginia Retirement System (VRS) ( email )

Richmond, VA
United States

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