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Systemic Risk and the Macroeconomy: An Empirical Evaluation

63 Pages Posted: 26 Oct 2012 Last revised: 10 Feb 2015

Stefano Giglio

Yale School of Management; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Bryan T. Kelly

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Seth Pruitt

Arizona State University (ASU) - Finance Department

Multiple version iconThere are 2 versions of this paper

Date Written: January 1, 2015

Abstract

This article evaluates a large collection of systemic risk measures based on their ability to predict macroeconomic downturns. We evaluate 19 measures of systemic risk in the US and Europe spanning several decades. We propose dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and prove their consistency in a factor model setting. Empirically, systemic risk indexes provide significant predictive information out-of-sample for the lower tail of future macroeconomic shocks.

Keywords: systemic risk, measures, quantile regression, predictive regression, macroeconomic downturns

Suggested Citation

Giglio, Stefano and Kelly, Bryan T. and Pruitt, Seth, Systemic Risk and the Macroeconomy: An Empirical Evaluation (January 1, 2015). Fama-Miller Working Paper; Chicago Booth Research Paper No. 12-49. Available at SSRN: https://ssrn.com/abstract=2158347 or http://dx.doi.org/10.2139/ssrn.2158347

Stefano Giglio (Contact Author)

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Bryan T. Kelly

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8359 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Seth Pruitt

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States

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