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Systemic risk for financial institutions of major petroleum-based economies: The role of oil

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  • Khalifa, Ahmed
  • Caporin, Massimiliano
  • Costola, Michele
  • Hammoudeh, Shawkat

Abstract

This paper examines the relationship between oil price movements and systemic risk of many financial institutions in major petroleum-based economies. We estimate ΔcoVaR for those institutions and thereby observe the presence of elevated increases in the levels corresponding to the subprime and global financial crises. The results provide evidence in favour of a better risk measurement by accounting for oil returns in the risk functions. The estimated spread between the standard CoVaR and the CoVaR that includes oil is absorbed in a time range that is longer than the duration of the oil shocks. This indicates that the drop in oil prices has a longer effect on risk and requires more time to be discounted by the financial institutions. To support the analysis, we consider other major market-based systemic risk measures.

Suggested Citation

  • Khalifa, Ahmed & Caporin, Massimiliano & Costola, Michele & Hammoudeh, Shawkat, 2017. "Systemic risk for financial institutions of major petroleum-based economies: The role of oil," SAFE Working Paper Series 172, Leibniz Institute for Financial Research SAFE, revised 2017.
    • Handle: RePEc:zbw:safewp:172
    DOI: 10.2139/ssrn.2985352
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    Cited by:

    1. Caporin, Massimiliano & Fontini, Fulvio & Panzica, Roberto, 2023. "The systemic risk of US oil and natural gas companies," Energy Economics, Elsevier, vol. 121(C).
    2. Saif Sallam Alhakimi & Hussein Hamood Sharaf-Addin, 2022. "Investigating the Impact of Oil Prices Changes on Financial Market Efficiency in Saudi Arabia for the Period (1980-2018): ARDL Approach," International Journal of Energy Economics and Policy, Econjournals, vol. 12(1), pages 420-426.

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    More about this item

    Keywords

    Systemic risk; risk measurement; VaR; ΔCoVaR; oil; financial institutions; petroleum-based economies;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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