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Forecasting Systemic Impact in Financial Networks

28 Pages Posted: 26 Aug 2013  

Nikolaus Hautsch

University of Vienna - Department of Statistics and Operations Research; Center for Financial Studies (CFS)

Julia Schaumburg

Tinbergen Institute; VU University Amsterdam

Melanie Schienle

Humboldt University of Berlin - School of Business and Economics

Date Written: August 25, 2013

Abstract

We propose a methodology for forecasting the systemic impact of financial institutions in interconnected systems. Utilizing a five-year sample including the 2008/9 financial crisis, we demonstrate how the approach can be used for timely systemic risk monitoring of large European banks and insurance companies. We predict firms’ systemic relevance as the marginal impact of individual downside risks on systemic distress. The so-called systemic risk betas account for a company’s position within the network of financial interdependencies in addition to its balance sheet characteristics and its exposure towards general market conditions. Relying only on publicly available daily market data, we determine time-varying systemic risk networks, and forecast systemic relevance on a quarterly basis. Our empirical findings reveal time-varying risk channels and firms’ specific roles as risk transmitters and/or risk recipients.

Keywords: forecasting systemic risk contributions, time-varying systemic risk network, model selection with regularization in quantiles

JEL Classification: G01, G18, G32, G38, C21, C51, C63

Suggested Citation

Hautsch, Nikolaus and Schaumburg, Julia and Schienle, Melanie, Forecasting Systemic Impact in Financial Networks (August 25, 2013). Available at SSRN: https://ssrn.com/abstract=2315827 or http://dx.doi.org/10.2139/ssrn.2315827

Nikolaus Hautsch (Contact Author)

University of Vienna - Department of Statistics and Operations Research ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Julia Schaumburg

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

HOME PAGE: http://juliaschaumburg.com

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands
+31 (0)20 59 82653 (Phone)

HOME PAGE: http://juliaschaumburg.com

Melanie Schienle

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

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