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Measuring Systemic Risk

Viral V. Acharya, Lasse H. Pedersen, Thomas Philippon () and Matthew Richardson

Review of Financial Studies, 2017, vol. 30, issue 1, 2-47

Abstract: We present an economic model of systemic risk in which undercapitalization of the financial sector as a whole is assumed to harm the real economy, leading to a systemic risk externality. Each financial institution’s contribution to systemic risk can be measured as its systemic expected shortfall (SES), that is, its propensity to be undercapitalized when the system as a whole is undercapitalized. SES increases in the institution’s leverage and its marginal expected shortfall (MES), that is, its losses in the tail of the system’s loss distribution. We demonstrate empirically the ability of components of SES to predict emerging systemic risk during the financial crisis of 2007–2009.Received December 1, 2015; editorial decision August 5, 2016 by Editor Andrew Karolyi.

JEL-codes: G01 G21 G28 D62 H23 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Measuring Systemic Risk (2012) Downloads
Working Paper: Measuring systemic risk (2010) Downloads
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Review of Financial Studies is currently edited by Maureen O'Hara

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