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Systemic risk measures: The simpler the better?

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  • Rodríguez-Moreno, María
  • Peña, Juan Ignacio
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    Abstract

    This paper estimates and compares two groups of high-frequency market-based systemic risk measures using European and US interbank rates, stock prices and credit derivatives data from 2004 to 2009. Measures belonging to the macro group gauge the overall tension in the financial sector and micro group measures rely on individual institution information to extract joint distress. We rank the measures using three criteria: (i) Granger causality tests, (ii) Gonzalo and Granger metric, and (iii) correlation with an index of systemic events and policy actions. We find that the best systemic measure in the macro group is the first principal component of a portfolio of Credit Default Swap (CDS) spreads whereas the best measure in the micro group is the multivariate densities computed from CDS spreads. These results suggest that the measures based on CDSs outperform measures based on interbank rates or stock market prices.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 37 (2013)
    Issue (Month): 6 ()
    Pages: 1817-1831

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    Handle: RePEc:eee:jbfina:v:37:y:2013:i:6:p:1817-1831

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Systemic risk; CDS; Libor spreads; CoVaR;

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    Cited by:
    1. Gorea, Denis & Radev, Deyan, 2014. "The euro area sovereign debt crisis: Can contagion spread from the periphery to the core?," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 78-100.
    2. Radev, Deyan, 2013. "Systemic risk and sovereign debt in the Euro area," SAFE Working Paper Series 37, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    3. Castro, Carlos & Ferrari, Stijn, 2014. "Measuring and testing for the systemically important financial institutions," Journal of Empirical Finance, Elsevier, vol. 25(C), pages 1-14.

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