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Systemic Risk for Financial Institutions of Major Petroleum-Based Economies: The Role of Oil

54 Pages Posted: 14 Jun 2017 Last revised: 22 Jun 2017

Ahmed A.A. Khalifa

King Fahd University of Petroleum & Minerals (KFUPM)

Massimiliano Caporin

University of Padua - Department of Statistical Sciences

Michele Costola

Goethe University Frankfurt - Research Center SAFE

Shawkat M. Hammoudeh

Montpellier Business School; Drexel University - Lebow College of Business

Date Written: June 13, 2017

Abstract

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

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

Ahmed A.A. Khalifa

King Fahd University of Petroleum & Minerals (KFUPM) ( email )

Dhahran, 31261
Saudi Arabia
+96638607082 (Phone)
+96638602585 (Fax)

Massimiliano Caporin

University of Padua - Department of Statistical Sciences ( email )

Via Battisti, 241
Padova, 35121
Italy

Michele Costola (Contact Author)

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Shawkat M. Hammoudeh

Montpellier Business School ( email )

2300 Avenue des Moulins
Montpellier, 34080
France

Drexel University - Lebow College of Business ( email )

3141 Chestnut Street
Philadelphia, PA 19104
United States
2158956673 (Phone)
2158956975 (Fax)

HOME PAGE: http://faculty.lebow.drexel.edu/HammoudehS/

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