Office Market Interconnectedness and Systemic Risk Exposure

55 Pages Posted: 31 May 2018

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Daniel Ruf

Goethe University Frankfurt - House of Finance; University of St. Gallen - School of Finance

Date Written: April 9, 2018

Abstract

This paper empirically studies how systemic risk in the banking sector affects return co-movements among financial center office markets. We compute an aggregated measure of systemic risk in financial centers that is related to the expected capital shortfall of financial institutions. The empirical results show that office market interconnectedness arises from systemic banking risk during financial turmoil periods. Our identification strategy is based on a double counterfactual approach. We find no evidence of return co-movements during normal times and among the counterfactual retail markets. The decline in office market returns during financial turmoil is larger in financial centers compared to non-financial centers. Our findings demonstrate how correlated risk among seemingly uncorrelated assets emerges in times when risk diversification is most needed.

Keywords: Commercial real estate, cross-sectional dependence, financial center, spatial econometrics, systemic risk

JEL Classification: G15, R30

Suggested Citation

Füss, Roland and Ruf, Daniel, Office Market Interconnectedness and Systemic Risk Exposure (April 9, 2018). University of St.Gallen, School of Finance Research Paper No. 2018/16. Available at SSRN: https://ssrn.com/abstract=3188010 or http://dx.doi.org/10.2139/ssrn.3188010

Roland Füss

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Daniel Ruf (Contact Author)

Goethe University Frankfurt - House of Finance ( email )

Grüneburgplatz 1
Frankfurt am Main, DE 60323
Germany

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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