The measurement of aggregate market risk
Preface This volume contains papers produced for the Euro-currency Standing Committee in a joint effort by researchers at several central banks. The papers address measurement of market risk, market dynamics, market liquidity, and the role that information plays in determining market outcomes in unsettled circumstances. The Committee believes that the research undertaken will be of interest to a wider audience, including market participants and the academic community. In publishing the papers, the Committee hopes to stimulate further research in these areas. The papers represent the views of the authors and not necessarily those of the central banks with which they are affiliated nor that of the Euro-currency Standing Committee. In July 1996, the BIS published a report of a working group of the Committee, chaired by Shinichi Yoshikuni of the Bank of Japan, which recommended the establishment of a reporting system on activities in global derivatives markets. That reporting system is to be implemented in 1998. The Report recognised that data on derivatives positions, while indispensable for tracking changes in the size and structure of derivatives markets over time, would shed limited light on how overall portfolio values and market conditions might change in the face of price shocks. The behaviour of markets in the face of shocks has long been an area of fundamental central bank interest and responsibility. When the papers in this volume were discussed by the Committee in May 1997, the Committee accepted the researchers' conclusion that this research did not establish an adequate technical basis or adequate justification for collecting aggregate market risk data. However, the Committee decided to encourage continuing work on other aspects of market behaviour addressed in these papers. In particular, in line with its mandate to monitor sources of potential instability in financial markets, the Committee will continue to encourage and review research on market functioning and price dynamics under stress. Toshihiko Fukui, Chairman, Euro-currency Standing Committee Senior Deputy Governor, Bank of Japan
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