Implied Risk Exposures

Sylvain Benoît, Christophe Hurlin and Christophe Perignon ()
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Sylvain Benoît: LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique

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Abstract: We show how to reverse-engineer banks' risk disclosures, such as Value-at-Risk, to obtain an implied measure of their exposures to equity, interest rate, foreign exchange, and commodity risks. Factor Implied Risk Exposures (FIRE) are obtained by breaking down a change in risk disclosure into a market volatility component and a bank-specific risk exposure component. In a study of large US and international banks, we show that (1) changes in risk exposures are negatively correlated with market volatility and (2) changes in risk exposures are positively correlated across banks, which is consistent with banks exhibiting commonality in trading.

Keywords: Herding; Risk Disclosure; (Stressed) Value-at-Risk; Regulatory Capital (search for similar items in EconPapers)
Date: 2014-07-18
New Economics Papers: this item is included in nep-ban and nep-rmg
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00836280v3
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Related works:
Journal Article: Implied Risk Exposures (2015)
Working Paper: Implied Risk Exposures (2015)
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