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Risk Contagion Due To Overlapping Portfolios With Leverage Decision

Author

Listed:
  • ZIYAN ZHU

    (School of Economics and Management, Southeast University, No. 2 SEU Road, Nanjing, Jiangsu Province, 211189, P. R. China)

  • XIAOXING LIU

    (School of Economics and Management, Southeast University, No. 2 SEU Road, Nanjing, Jiangsu Province, 211189, P. R. China)

Abstract

Since the subprime mortgage crisis, it is urgent to quantify the systemic financial risk and the network externality from the vulnerable perspective. Based on the overlapping portfolio, this study constructs an optimal leverage decision-making model with deleveraging and the fire sales mechanism to describe the liquidity risk spillover effects. Through the empirical results, the institution of a larger size should be more systematically important. Higher leverages account for more vulnerability, while institutions with higher interest ratios of revenue or cost and capital adequacy ratios would be more invulnerable.

Suggested Citation

  • Ziyan Zhu & Xiaoxing Liu, 2021. "Risk Contagion Due To Overlapping Portfolios With Leverage Decision," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 24(07n08), pages 1-29, December.
    • Handle: RePEc:wsi:acsxxx:v:24:y:2021:i:07n08:n:s0219525921500181
    DOI: 10.1142/S0219525921500181
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