Office Market Interconnectedness and Systemic Risk Exposure

68 Pages Posted: 31 May 2018 Last revised: 16 Sep 2020

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: September 9, 2020

Abstract

We empirically examine how systemic risk in the banking sector leads to correlated
risk in office markets of global financial centers. In so doing, we compute an aggregated
measure of systemic risk in financial centers as the cumulated expected
capital shortfall of local financial institutions. Our identification strategy is based
on a double counterfactual approach by comparing normal with financial distress
periods as well as office with retail markets. We find that office market interconnectedness
arises from systemic risk during financial turmoil periods. Office market
performance in a financial center is affected by returns of systemically linked financial
center office markets only during a systemic banking crisis. In contrast, there
is no evidence of correlated risk during normal times and among the within-city
counterfactual retail sector. The decline in office market returns during a banking
crisis is larger in financial centers compared to non-financial centers.

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 (September 9, 2020). 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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