Assessing financial distress dependencies in OTC markets: a new approach using trade repositories data
Michele Bonollo (),
Irene Crimaldi (),
Andrea Flori (),
Laura Gianfagna () and
Fabio Pammolli ()
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Michele Bonollo: Iason Ltd
Irene Crimaldi: IMT School for Advanced Studies Lucca
Andrea Flori: IMT School for Advanced Studies Lucca
Financial Markets and Portfolio Management, 2016, vol. 30, issue 4, 397-426
Abstract In this paper, we study the relationships among financial market sub-segments as a way to identify potential financial distress through increased co-movements among them. To study how sub-markets are mutually co-dependent, we combine granular data on over-the-counter derivatives by trade repositories and the joint probability of distress (JPoD) approach introduced by the International Monetary Fund. We define an indicator that combines several distress drivers and observe that results on co-dependencies are similar to those that would be expected: similarities between financial and contractual terms seem to be responsible for stronger co-movements among sub-markets. However, high values for JPoD even in correspondence of quite dissimilar sub-markets suggest the presence of other drivers that should be investigated in future research. To the best of our knowledge, this is the first empirical study on systemic risk assessment based on micro-founded trade repositories’ data on interest rate swaps.
Keywords: Financial distress interdependence; Joint probability of distress; Interest rate swaps; Systemic risk; Micro-founded trade repositories’ data (search for similar items in EconPapers)
JEL-codes: G01 G18 G19 (search for similar items in EconPapers)
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