Systemic Risk and Portfolio Diversification: Evidence from the Futures Market

Radoslav Raykov

Staff Working Papers from Bank of Canada

Abstract: This paper explores the extent to which correlated investments in the futures market concentrated systemic risk on large Canadian banks around the 2008 crisis. We find that core banks took positions against the periphery, increasing their systemic risk as a group. On the portfolio level, position similarity was the main systemic risk driver for core banks, while cross-price correlations drove the systemic risk of noncore banks. Core banks were more diversified, but their portfolios also overlapped more. By contrast, non-core banks were less diversified, but also overlapped less. This significantly nuances the debate on concentration versus diversification as systemic risk sources.

Keywords: Financial institutions; Financial markets (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2021-10
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-fmk and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2021/10/swp2021-50.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:21-50

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().