Covar

45 Pages Posted: 6 Oct 2011 Last revised: 12 Mar 2022

See all articles by Tobias Adrian

Tobias Adrian

International Monetary Fund

Markus K. Brunnermeier

Princeton University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2011

Abstract

We propose a measure for systemic risk: CoVaR, the value at risk (VaR) of the financial system conditional on institutions being under distress. We define an institution's contribution to systemic risk as the difference between CoVaR conditional on the institution being under distress and the CoVaR in the median state of the institution. From our estimates of CoVaR for the universe of publicly traded financial institutions, we quantify the extent to which characteristics such as leverage, size, and maturity mismatch predict systemic risk contribution. We also provide out of sample forecasts of a countercyclical, forward looking measure of systemic risk and show that the 2006Q4 value of this measure would have predicted more than half of realized covariances during the financial crisis.

Suggested Citation

Adrian, Tobias and Brunnermeier, Markus Konrad, Covar (October 2011). NBER Working Paper No. w17454, Available at SSRN: https://ssrn.com/abstract=1939717

Tobias Adrian (Contact Author)

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://www.tobiasadrian.com

Markus Konrad 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

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