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Office Market Interconnectedness and Systemic Risk Exposure

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  • Roland Füss
  • Daniel Ruf

Abstract

This paper empirically studies how systemic risk in the banking sector affects return co-movements among financial center office markets. We compute an aggregated measure of systemic risk in financial centers that is related to the expected capital shortfall of financial institutions. The empirical results show that office market interconnectedness arises from systemic banking risk during financial turmoil periods. Our identification strategy is based on a double counterfactual approach. We find no evidence of return co-movements during normal times and among the counterfactual retail markets. The decline in office market returns during financial turmoil is larger in financial centers compared to non-financial centers. Our findings demonstrate how correlated risk among seemingly uncorrelated assets emerges in times when risk diversification is most needed.

Suggested Citation

  • Roland Füss & Daniel Ruf, 2018. "Office Market Interconnectedness and Systemic Risk Exposure," Working Papers on Finance 1830, University of St. Gallen, School of Finance.
  • Handle: RePEc:usg:sfwpfi:2018:30
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    File URL: http://ux-tauri.unisg.ch/RePEc/usg/sfwpfi/WPF-1830.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Commercial real estate; cross-sectional dependence; financial center; spatial econometrics; systemic risk;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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