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Measuring systemic risk: A comparison of alternative market-based approaches

Author

Listed:
  • Kleinow, Jacob
  • Moreira, Fernando
  • Strobl, Sascha
  • Vähämaa, Sami

Abstract

This paper compares four commonly used systemic risk metrics using data on U.S. financial institutions over the period 2005–2014. The four systemic risk measures examined are the (i) marginal expected shortfall, (ii) codependence risk, (iii) delta conditional value at risk, and (iv) lower tail dependence. Our results demonstrate that the alternative measurement approaches produce very different estimates of systemic risk. Furthermore, we show that the different systemic risk metrics may lead to contradicting assessments about the riskiness of different types of financial institutions. Overall, our findings suggest that systemic risk assessments based on a single risk metric should be approached cautiously.

Suggested Citation

  • Kleinow, Jacob & Moreira, Fernando & Strobl, Sascha & Vähämaa, Sami, 2017. "Measuring systemic risk: A comparison of alternative market-based approaches," Finance Research Letters, Elsevier, vol. 21(C), pages 40-46.
    • Handle: RePEc:eee:finlet:v:21:y:2017:i:c:p:40-46
    DOI: 10.1016/j.frl.2017.01.003
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Systemic risk; Marginal expected shortfall; Codependence risk; Delta conditional value at risk; Lower tail dependence; Bank risk-taking; Financial crisis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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