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Systemic Risk in the Dutch Financial Sector

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Author Info
Koen Minderhoud
Abstract

This paper investigates systemic risk in the Dutch financial sector by focusing on extreme returns of the major financial institutions. Our measure of systemic risk is the number of coincidences of extreme returns that cannot be explained by a linear model of constant correlation. By using a Monte Carlo simulation, we find strong evidence of correlation breakdown among the major Dutch financials. This indicates that systemic risk is significant, which has implications for effective prudential supervision. In addition, our results indicate that insurance activities of banks may increase systemic risk.

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File URL: http://www.dnb.nl/binaries/serie2003-17_tcm46-147346.pdf
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Publisher Info
Paper provided by Netherlands Central Bank, Monetary and Economic Policy Department in its series MEB Series (discontinued) with number 2003-17.

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Date of creation: Dec 2003
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Handle: RePEc:dnb:mebser:2003-17

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Related research
Keywords: banks; correlation breakdown; extreme co-movements; financial institutions; insurance companies; extreme stock returns; systemic risk;

Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies

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This page was last updated on 2009-11-25.

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