Systemic Risk for Financial Institutions of Major Petroleum-Based Economies: The Role of Oil
56 Pages Posted: 14 Jun 2017 Last revised: 10 Nov 2017
Date Written: November 5, 2017
This paper examines the relationship between oil price movements and systemic risk of many financial institutions in major petroleum-based economies. We estimate ΔCoVaR for those institutions and thereby observe the presence of elevated increases in the levels corresponding to the subprime and global financial crises. The results provide evidence in favour of a better risk measurement by accounting for oil returns in the risk functions. The estimated spread between the standard CoVaR and the CoVaR that includes oil is absorbed in a time range that is longer than the duration of the oil shocks. This indicates that the drop in oil prices has a longer effect on risk and requires more time to be discounted by the financial institutions. To support the analysis, we consider 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
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