54 Pages Posted: 14 Jun 2017 Last revised: 22 Jun 2017
Date Written: June 13, 2017
This paper examines the relationship between oil movements and systemic risk of financial institution in major petroleum-based economies. We estimate ΔCoVaR for those institutions and observe the presence of elevated increases in its levels corresponding to the subprime and global financial crises. The results provide evidence in favor of risk measurement improvements by accounting for oil returns in the risk functions. The spread between the standard CoVaR and the CoVaR that includes oil absorbs in a time range longer than the duration of the oil shock. This indicates that the drop in the oil price has a longer effect on risk and requires more time to be discounted by the financial institutions. To support the analysis, we consider also the other major market-based systemic risk measures.
Keywords: Systemic Risk, Risk Measurement, VaR, ΔCoVaR, Oil, Financial Institutions, Petroleum-based Economies
JEL Classification: C22, C58, G01, G17, G20, G21, G32
Suggested Citation: Suggested Citation
Khalifa, Ahmed A.A. and Caporin, Massimiliano and Costola, Michele and Hammoudeh, Shawkat M., Systemic Risk for Financial Institutions of Major Petroleum-Based Economies: The Role of Oil (June 13, 2017). SAFE Working Paper No. 172. Available at SSRN: https://ssrn.com/abstract=2985352