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Risk Topography

31 Pages Posted: 30 Apr 2011 Last revised: 7 Jun 2011

Markus K. Brunnermeier

Princeton University - Department of Economics

Gary B. Gorton

Yale School of Management; National Bureau of Economic Research (NBER)

Arvind Krishnamurthy

Northwestern University - Kellogg School of Management

Date Written: May 31, 2011

Abstract

The aim of this paper is to conceptualize and design a risk topography that outlines a data acquisition and dissemination process that informs policymakers, researchers and market participants about systemic risk. Our approach emphasizes that systemic risk (i) cannot be detected based on measuring cash instruments, e.g., balance sheet items and income statement items; (ii) typically builds up in the background before materializing in a crisis; and (iii), is determined by market participants’ response to various shocks. We propose that regulators elicit from market participants their (partial equilibrium) risk as well as liquidity sensitivities with respect to major risk factors and liquidity scenarios. General equilibrium responses and economy-wide system effects can be calibrated using this panel data set.

Keywords: Measurement, Systemic Risk, Liquidity

Suggested Citation

Brunnermeier, Markus K. and Gorton, Gary B. and Krishnamurthy, Arvind, Risk Topography (May 31, 2011). Available at SSRN: https://ssrn.com/abstract=1825124 or http://dx.doi.org/10.2139/ssrn.1825124

Markus Brunnermeier

Princeton University - Department of Economics ( email )

Bendheim Center for Finance
Princeton, NJ
United States
609-258-4050 (Phone)
609-258-0771 (Fax)

HOME PAGE: http://www.princeton.edu/¡­markus

Gary Gorton (Contact Author)

Yale School of Management ( email )

165 Whitney Ave
P.O. Box 208200
New haven, CT 06511
United States

HOME PAGE: http://mba.yale.edu/faculty/profiles/gorton.shtml

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Arvind Krishnamurthy

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-2671 (Phone)
847-491-5719 (Fax)

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