The Information in Systemic Risk Rankings

Tinbergen Institute Discussion Paper 15-070/III/94

24 Pages Posted: 3 Jun 2015

See all articles by Federico Nucera

Federico Nucera

Bank of Italy

Bernd Schwaab

European Central Bank (ECB) - Directorate General Research

Siem Jan Koopman

Vrije Universiteit Amsterdam - School of Business and Economics; Tinbergen Institute; Aarhus University - CREATES

Andre Lucas

Vrije Universiteit Amsterdam; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: June 1, 2015

Abstract

We propose to pool alternative systemic risk rankings for financial institutions using the method of principal components. The resulting overall ranking is less affected by estimation uncertainty and model risk. We apply our methodology to disentangle the common signal and the idiosyncratic components from a selection of key systemic risk rankings that are recently proposed. We use a sample of 113 listed financial sector firms in the European Union over the period 2002-2013. The implied ranking from the principal components is less volatile than most individual risk rankings and leads to less turnover among the top ranked institutions. We also find that price-based rankings and fundamentals based rankings deviated substantially and for a prolonged time in the period leading up to the financial crisis. We test the adequacy of our newly pooled systemic risk ranking by relating it to credit default swap premia.

Keywords: systemic risk contribution, risk rankings, forecast combination, financial regulation, banking supervision

JEL Classification: G01, G28

Suggested Citation

Nucera, Federico and Schwaab, Bernd and Koopman, Siem Jan and Lucas, Andre, The Information in Systemic Risk Rankings (June 1, 2015). Tinbergen Institute Discussion Paper 15-070/III/94, Available at SSRN: https://ssrn.com/abstract=2613285 or http://dx.doi.org/10.2139/ssrn.2613285

Bernd Schwaab

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Siem Jan Koopman

Vrije Universiteit Amsterdam - School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31205986019 (Phone)

HOME PAGE: http://sjkoopman.net

Tinbergen Institute ( email )

Gustav Mahlerplein 117
1082 MS Amsterdam
Netherlands

HOME PAGE: http://personal.vu.nl/s.j.koopman

Aarhus University - CREATES ( email )

School of Economics and Management
Building 1322, Bartholins Alle 10
DK-8000 Aarhus C
Denmark

Andre Lucas

Vrije Universiteit Amsterdam ( email )

SBE/EDS, De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands
+31 20 598 6039 (Phone)
+31 20 598 6020 (Fax)

HOME PAGE: http://personal.vu.nl/a.lucas

Tinbergen Institute

Roetersstraat 31
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www.tinbergen.nl

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