Global Business Cycles and Credit Risk
Mohammad Pesaran,
Til Schuermann and
Björn-Jakob Treutler
No 11493, NBER Working Papers from National Bureau of Economic Research, Inc
Abstract:
The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive macroeconomic model accounting for about 80% of world output, we propose a model for exploring credit risk diversification across industry sectors and across different countries or regions. We find that full firm-level parameter heterogeneity along with credit rating information matters a great deal for capturing differences in simulated credit loss distributions. These differences become more pronounced in the presence of systematic risk factor shocks: increased parameter heterogeneity reduces shock sensitivity. Allowing for regional parameter heterogeneity seems to better approximate the loss distributions generated by the fully heterogenous model than allowing just for industry heterogeneity. The regional model also exhibits less shock sensitivity.
JEL-codes: C32 E17 G20 (search for similar items in EconPapers)
Date: 2005-07
New Economics Papers: this item is included in nep-fin, nep-fmk and nep-mac
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)
Published as Global Business Cycles and Credit Risk , M. Hashem Pesaran, Til Schuermann, Bjorn-Jakob Treutler. in The Risks of Financial Institutions , Carey and Stulz. 2006
Downloads: (external link)
http://www.nber.org/papers/w11493.pdf (application/pdf)
Related works:
Chapter: Global Business Cycles and Credit Risk (2007) 
Working Paper: Global Business Cycles and Credit Risk (2005) 
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:nbr:nberwo:11493
Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w11493
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().