Measuring Systemic Risk with CoVaR Using a Stock Market Data Based Approach

Marta Karaś () and Witold Szczepaniak ()
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Marta Karaś: Wroclaw University of Economics
Witold Szczepaniak: Wroclaw University of Economics

A chapter in Contemporary Trends and Challenges in Finance, 2017, pp 135-143 from Springer

Abstract: Abstract The aim of the paper is to present and discuss an alternative method of calculating the CoVaR of the banking system. The authors build and empirically utilise the measure of systemic risk, which is based on the traditional CoVaR approach, as proposed by Adrian and Brunenmeier (CoVaR. Staff Report No. 348, Federal Reserve Bank of New York, 2008 [revised September 2014]; CoVaR. NBER Working Paper No. 17454, National Bureau of Economic Research, 2011; Am Econ Rev 106:1705–1741, 2016), but uses market-based data (instead of the book values) for calculation. The assumptions of this method, among all else are that 1) the aspects of systemic risk which closely relate to financial system stability, for relatively small financial systems, where the banking sector is the main provided of funding and liquidity, may be modelled with banking-sector-based methods; and 2) the stock market is efficient enough to price the risk related to those financial institutions, whose stocks are quoted on the relevant stock exchange. The empirical research is carried on the example of Poland, as in the authors opinion, also following the literature, the two mentioned assumptions hold for this particular country. The paper concludes with ideas for future research, including further development of the proposed method to include institutions other than banks, and a range of other central European countries for which this method is applicable.

Keywords: Value at risk; Systemic risk; CoVaR; Banking sector (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-54885-2_13

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DOI: 10.1007/978-3-319-54885-2_13

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