Systemic risk for financial institutions of major petroleum-based economies: The role of oil

Ahmed Khalifa, Massimiliano Caporin, Michele Costola and Shawkat Hammoudeh

No 172, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: This paper examines the relationship between oil price movements and systemic risk of many financial institutions in major petroleum-based economies. We estimate ΔcoVaR for those institutions and thereby observe the presence of elevated increases in the levels corresponding to the subprime and global financial crises. The results provide evidence in favour of a better risk measurement by accounting for oil returns in the risk functions. The estimated spread between the standard CoVaR and the CoVaR that includes oil is absorbed in a time range that is longer than the duration of the oil shocks. This indicates that the drop in oil prices has a longer effect on risk and requires more time to be discounted by the financial institutions. To support the analysis, we consider other major market-based systemic risk measures.

Keywords: Systemic risk; risk measurement; VaR; ΔCoVaR; oil; financial institutions; petroleum-based economies (search for similar items in EconPapers)
JEL-codes: C22 C58 G01 G17 G20 G21 G32 (search for similar items in EconPapers)
Date: 2017, Revised 2017
New Economics Papers: this item is included in nep-ara, nep-ban, nep-ene and nep-rmg
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https://www.econstor.eu/bitstream/10419/203309/1/safe-wp-172_2.pdf (application/pdf)

Related works:
Journal Article: Systemic Risk for Financial Institutions in the Major Petroleum-based Economies: The Role of Oil (2021)
Journal Article: Systemic Risk for Financial Institutions in the Major Petroleum-based Economies: The Role of Oil (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:172

DOI: 10.2139/ssrn.2985352

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