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Big Banks, Idiosyncratic Volatility, and Systemic Risk

Ricardo Fernholz () and Christoffer Koch ()

American Economic Review, 2017, vol. 107, issue 5, 603-07

Abstract: Starting in the 1990s, US bank assets grew more concentrated among a few large institutions. We explore the changing role of idiosyncratic volatility as a shaping force of the bank asset power law distribution. Our results reveal that idiosyncratic asset volatilities for bank-holding companies declined since the 1990s. To the extent that firm-specific shocks can have significant macroeconomic consequences, this result implies that even as one obvious source of aggregate risk and contagion--bank asset concentration--has increased, another important source--idiosyncratic volatility--has diminished.

JEL-codes: E32 E44 G01 G21 L11 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/aer.p20171007
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