Determinants of Systemic Risk and Information Dissemination

51 Pages Posted: 16 Dec 2013 Last revised: 12 Mar 2015

See all articles by Marcelo Bianconi

Marcelo Bianconi

Tufts University - Department of Economics

Xiaxin Hua

Clark University - Department of Economics

Chih Ming Tan

University of North Dakota - College of Business & Public Administration - Department of Economics

Date Written: May 10, 2014

Abstract

We study the effects of two measures of information dissemination on the determination of systemic risk. One measure is print-media consumer sentiment based while the other is volatility based. We find evidence that while the volatility measure (VIX) of future expectations has a more significant direct impact upon systemic risk of financial firms under distress, a consumer sentiment measure based on print-media news does impact upon firm’s financial stress via the externality of other firm’s financial stress. This latter effect is robust even though the VIX and the consumer sentiment have dynamic feedback in the short one and two-day horizon in levels, and contemporaneously in volatility. In reference to the internet bubble of the 1990s, the consumer sentiment measure predicts larger systemic risk in the whole period of exuberance while the VIX predicts a sharp larger systemic risk in the height of the bubble. Our evidence suggests that print-media consumer sentiment might be dominated by the VIX when predicting systemic risk.

Keywords: conditional value-at-risk, VIX, externality, consumer sentiment

JEL Classification: G00, G14

Suggested Citation

Bianconi, Marcelo and Hua, Xiaxin and Tan, Chih Ming, Determinants of Systemic Risk and Information Dissemination (May 10, 2014). International Review of Economics & Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2367882 or http://dx.doi.org/10.2139/ssrn.2367882

Marcelo Bianconi (Contact Author)

Tufts University - Department of Economics ( email )

Medford, MA 02155
United States
617-627-2677 (Phone)

HOME PAGE: http://www.tufts.edu/~mbiancon

Xiaxin Hua

Clark University - Department of Economics ( email )

950 Main Street
Worcester, MA 01610
United States

Chih Ming Tan

University of North Dakota - College of Business & Public Administration - Department of Economics ( email )

293 Centennial Drive Stop 8369
Grand Forks, ND 58202-8369
United States

HOME PAGE: http://sites.google.com/site/chihmingtan/home

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