On the correlation of systemic dimensions

Mathis Mourey ()
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Mathis Mourey: UGA - Université Grenoble Alpes

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Abstract: We propose an analysis of correlation between three systemic risk measures: ∆CoVaR, Granger causalities and ILLIQ. Based on previous research, we interpret the measures above as proxies for systemic dimensions; respectively, Losses, Connectedness and Illiquidity. Our study shows that systemic dimensions are uncorrelated in stable periods and lose their orthogonality in crisis periods. This result confirms that systemic risk is a composition of different type of risk that occur concomitantly. Moreover, we show that, by applying a specific lag for each systemic dimensions, we improve the identification of systemic crisis periods and reduce the noise of the measure. This constitutes an evidence of a peculiar order in the occurrence of systemic dimensions; hinting that a specific chronology of systemic events might exist.

Keywords: Systemic Risk; PCA; CoVaR; ILLIQ; Connectedness; Subprime crisis (search for similar items in EconPapers)
Date: 2022-11-26
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