Forecasting the fragility of the banking and insurance sectors
Kerstin Bernoth () and
Journal of Banking & Finance, 2011, vol. 35, issue 4, 807-818
Linkages between banks and insurance companies are important when forecasting the fragility of the banking and insurance sectors. We propose a novel empirical framework that allows us to estimate unobserved linkages in panel data sets that contain observed regressors. We find that taking unobserved common factors into account reduces the root mean square forecasts error of firm specific forecasts by up to 9%, of system forecasts by up to 14%, and by up to 39% for systemic forecasts of more distressed firms relative to a model based on observed variables only. Estimates of the factor loadings suggest that the correlation of financial institutions has been relatively stable over the forecast period.
Keywords: Financial; stability; Financial; linkages; Banking; Insurances; Unobserved; common; factors (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
Working Paper: Forecasting the Fragility of the Banking and Insurance Sector (2009)
Working Paper: Forecasting the fragility of the banking and insurance sector (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:35:y:2011:i:4:p:807-818
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().