Can market risk explain the systemic risk? Evidence from the US banking industry

Panagiotis Tzouvanas

Journal of Economic Studies, 2023, vol. 51, issue 1, 165-184

Abstract: Purpose - This paper sheds light on the impact of market risk measures on systemic risk. Market risk, which is captured by the volatility of stock market returns, is also decomposed into systematic and idiosyncratic risks. Design/methodology/approach - The author uses the five-factor asset pricing model and systemic risk methodologies to derive market and systemic risk measures, respectively. Using a sample of 2,667 US banks for over 30 years and employing panel data estimation techniques, the author tests the said relationship. Findings - It is shown that idiosyncratic risk can surge systemic risk, while systematic risk plays a less important role. Results survive a battery of tests, including different systemic risk measures, controlling causality and interacting with bank size, market fear and crisis periods. Practical implications - These findings call for regulatory intervention, especially for large banks with high idiosyncratic risk. Originality/value - This is the first paper that provides a more granular picture of the relationship between market and systemic risk from the US banking industry for more than 30 years.

Keywords: Systemic risk; Market risk; Idiosyncratic risk; Systematic risk; G2; G3; G12 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-12-2022-0664

DOI: 10.1108/JES-12-2022-0664

Access Statistics for this article

Journal of Economic Studies is currently edited by Prof Mohsen Bahmani-Oskooee

More articles in Journal of Economic Studies from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().