Implied Risk Exposures

Sylvain Benoît, Christophe Hurlin and Christophe Perignon (perignon@hec.fr)
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Sylvain Benoît: LEDA-SDFi - Stratégie et Dynamiques Financières - LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: We show how to reverse-engineer banks' risk disclosures, such as value-at-risk, to obtain an implied measure of their exposures to equity, interest rate, foreign exchange, and commodity risks. Factor implied risk exposures are obtained by breaking down a change in risk disclosure into a market volatility component and a bank-specific risk exposure component. In a study of large US and international banks, we show that (i) changes in risk exposures are negatively correlated with market volatility and (ii) changes in risk exposures are positively correlated across banks, which is consistent with banks exhibiting commonality in trading.

Keywords: Herding; Risk Disclosure; (Stressed) Value-at-Risk; Regulatory Capital (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

Published in Review of Finance, 2015, 19 (6), ⟨10.1093/rof/rfu050⟩

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Related works:
Journal Article: Implied Risk Exposures (2015)
Working Paper: Implied Risk Exposures (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01485613

DOI: 10.1093/rof/rfu050

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