Net Systemic Risk

36 Pages Posted: 31 Jul 2020

Date Written: July 22, 2020


The emphasis of this paper is on understanding the proliferation of financial institutions beyond movements of the entire market, namely, systemic risk net of systematic risk. I present economic foundation for this new notion of risk I term “net systemic risk” and propose two metrics: Net Systemic Risk (NSR) and Reverse Net Systemic Risk (RevNSR). I also provide a theoretical link between net systemic risk and other risk classes including total, systemic, systematic, and idiosyncratic risk. The empirical analysis for NSR and RevNSR demonstrates that these measures would be able to predict systemic pressure during the financial crisis of 2007-2009.

Keywords: net systemic risk, systemic risk, systematic risk, factor structure, marginal utility

JEL Classification: G01

Suggested Citation

Lee, Woongki, Net Systemic Risk (July 22, 2020). Available at SSRN: or

Woongki Lee (Contact Author)

Korea University ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, Seoul 136701
Korea, Republic of (South Korea)
82-10-9759-8400 (Phone)


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