Systemic risk measures: The simpler the better?

Maria Rodriguez-Moreno and Juan Ignacio Peña

Journal of Banking & Finance, 2013, vol. 37, issue 6, 1817-1831

Abstract: This paper estimates and compares two groups of high-frequency market-based systemic risk measures using European and US interbank rates, stock prices and credit derivatives data from 2004 to 2009. Measures belonging to the macro group gauge the overall tension in the financial sector and micro group measures rely on individual institution information to extract joint distress. We rank the measures using three criteria: (i) Granger causality tests, (ii) Gonzalo and Granger metric, and (iii) correlation with an index of systemic events and policy actions. We find that the best systemic measure in the macro group is the first principal component of a portfolio of Credit Default Swap (CDS) spreads whereas the best measure in the micro group is the multivariate densities computed from CDS spreads. These results suggest that the measures based on CDSs outperform measures based on interbank rates or stock market prices.

Keywords: Systemic risk; CDS; Libor spreads; CoVaR (search for similar items in EconPapers)
JEL-codes: C32 G01 G15 G21 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Related works:
Chapter: Systemic risk measures: the simpler the better? (2011)
Working Paper: Systemic risk measures: the simpler the better (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:37:y:2013:i:6:p:1817-1831

DOI: 10.1016/j.jbankfin.2012.07.010

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