Financial Network Systemic Risk Contributions
Top Cited Papers
- 1 March 2014
- journal article
- research article
- Published by Oxford University Press (OUP) in European Finance Review
- Vol. 19 (2), 685-738
- https://doi.org/10.1093/rof/rfu010
Abstract
We propose the realized systemic risk beta as a measure of financial companies' contribution to systemic risk, given network interdependence between firms' tail risk exposures. Conditional on statistically pre-identified network spillover effects and market and balance sheet information, we define the realized systemic risk beta as the total time-varying marginal effect of a firm's Value-at-risk (VaR) on the system's VaR. Statistical inference reveals a multitude of relevant risk spillover channels and determines companies' systemic importance in the US financial system. Our approach can be used to monitor companies' systemic importance, enabling transparent macroprudential supervision.Keywords
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