Systemic Risk and Portfolio Diversification: Evidence from the Futures Market
Staff Working Papers from Bank of Canada
This paper explores the extent to which correlated investments in the futures market concentrated systemic risk on large Canadian banks around the 2008 crisis. We find that core banks took positions against the periphery, increasing their systemic risk as a group. On the portfolio level, position similarity was the main systemic risk driver for core banks, while cross-price correlations drove the systemic risk of noncore banks. Core banks were more diversified, but their portfolios also overlapped more. By contrast, non-core banks were less diversified, but also overlapped less. This significantly nuances the debate on concentration versus diversification as systemic risk sources.
Keywords: Financial institutions; Financial markets (search for similar items in EconPapers)
JEL-codes: G10 G20 (search for similar items in EconPapers)
Pages: 40 pages
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-fmk and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:21-50
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