Risk Diversification by European Financial Conglomerates
AbstractWe study the dependence between the downside risk of European banks and insurers. Since the downside risk of banks and insurers differs, an interesting question from a supervisory point of view is the risk reduction that derives from diversification within large banks and financial conglomerates. We discuss the limited value of the normal distribution based correlation concept, and propose an alternative measure which better captures the downside dependence given the fat tail property of the risk distribution. This measure is estimated and indicates better diversification benefits for conglomerates versus large banks.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 05-110/2.
Date of creation: 08 Dec 2005
Date of revision:
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Web page: http://www.tinbergen.nl
Financial conglomerates; Banking; Insurance; Diversification; Extreme Value Theory;
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-EEC-2006-01-24 (European Economics)
- NEP-FIN-2006-01-24 (Finance)
- NEP-FMK-2006-01-24 (Financial Markets)
- NEP-IAS-2006-01-24 (Insurance Economics)
- NEP-RMG-2006-01-24 (Risk Management)
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