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  • Tobias Adrian
  • Markus K. Brunnermeier

We define CoVaR as the value at risk (VaR) of financial institutions conditional on other institutions being in distress. The increase of CoVaR relative to VaR measures spillover risk among institutions. We estimate CoVaR using quantile regressions and document significant CoVaR increases among financial institutions. We identify six risk factors that allow institutions to offload tail risk and show that such hedging reduces the wedge between CoVaR and VaR. We argue that financial institutions should report CoVaR in addition to VaR, and we draw implications for risk management, regulation, and systemic risk. We define co-expected shortfall as a sum of CoVaRs.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 348.

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Date of creation: 2008
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Handle: RePEc:fip:fednsr:348
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