Global systemic risk measures and their forecasting power for systemic events

Peter Grundke and Michael Tuchscherer

The European Journal of Finance, 2019, vol. 25, issue 3, 205-233

Abstract: Since the financial crisis of 2007–2009, many market-based systemic risk measures have been proposed. Prominent examples are MES, SRISK or ΔCoVaR. Based on a simulation study in an extended banking network model that incorporates several sources of systemic risk, we analyze how well these systemic risk measures perform in indicating the risk of a systemic event. For this analysis, the systemic risk measures of the banks that default and whose default is followed by a systemic event are compared with the systemic risk measures of those defaulting banks for which no subsequent systemic event can be observed. Within the simulation study, we find that many bank-individual systemic risk measures are statistically significant in explaining the likelihood of a systemic event after a bank’s default. However, the economic significance of the bank-individual systemic risk measures is relatively low.

Date: 2019
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DOI: 10.1080/1351847X.2018.1509102

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