Correlation between the 2014 EU-wide stress tests and the market-based measures of systemic risk

Sonia Dissem and Frederic Lobez

Research in International Business and Finance, 2020, vol. 51, issue C

Abstract: In this paper, we compare the results of the European Banking Authority (EBA) stress tests conducted in 2014 with the market-based measures of capital losses, which are the marginal expected shortfall (MES), the systemic risk measure (SRISK) and the delta conditional value at risk (ΔCoVaR). These measures allow us to estimate the expected capital shortfall in the case of a crisis. The empirical analysis is performed on a sub-sample of the banks included in the stress test exercise, because only 57 European banks, in 22 countries, are publicly traded. We find that the SRISK is the best predictor of systemic risk among the 3 systemic risk measures, since it is the most correlated with the stress test results. Furthermore, we focus on the realized outcomes (realized loss, realized return and realized volatility) and compare them with the 2014 EU stress test results.

Keywords: Stress test; Systemic risk; Bank regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:51:y:2020:i:c:s0275531918300965

DOI: 10.1016/j.ribaf.2018.08.001

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