Stress Tests of Capital Requirements

96-50

30 Pages Posted: 28 Jan 1997

See all articles by Elroy Dimson

Elroy Dimson

University of Cambridge - Judge Business School; London Business School; European Corporate Governance Institute (ECGI)

Paul Marsh

London Business School - Institute of Finance and Accounting

Date Written: October 1996

Abstract

This paper examines the performance of the leading methods for setting capital requirements for securities firms' trading books. Tests are conducted on a large sample of UK equity market makers' books over a substantial number of periods of equity market stress from 1985 to 1995. The comprehensive and building-block approaches, favored by US and European regulators, fail to provide effective cover. Only portfolio-based, value-at-risk type models are efficient in providing appropriate levels of capital to cover the position risk of equity trading books.

JEL Classification: D81, G31

Suggested Citation

Dimson, Elroy and Marsh, Paul, Stress Tests of Capital Requirements (October 1996). 96-50. Available at SSRN: https://ssrn.com/abstract=2219 or http://dx.doi.org/10.2139/ssrn.2219

Elroy Dimson (Contact Author)

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+44 700 607 7390 (Fax)

London Business School ( email )

Sussex Place
Regent's Park
London, NW1 4SA
United Kingdom
44 20 7000 7000 (Phone)
44 700 607 7390 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Paul Marsh

London Business School - Institute of Finance and Accounting ( email )

Sussex Place
Regent's Park
London NW1 4SA
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1,090
Abstract Views
4,865
rank
20,919
PlumX Metrics