Econometric Measures of Systemic Risk in the Finance and Insurance Sectors

By Monica Billio, Mila Getmansky, Andrew W. Lo, Loriana Pelizzon. 2010

251 citations recorded by the source corpus.

We propose several econometric measures of systemic risk to capture the interconnectedness among the monthly returns of hedge funds, banks, brokers, and insurance companies based on principal components analysis and Granger-causality tests. We find that all four sectors have become highly interrelated over the past decade, increasing the level of systemic risk in the finance and insurance industries. These measures can also identify and quantify financial crisis periods, and seem to contain predictive power for the current financial crisis. Our results suggest that hedge funds can provide early indications of market dislocation, and systemic risk arises from a complex and dynamic network of relationships among hedge funds, banks, insurance companies, and brokers.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/0c0d51a447fea9a75e01588e8afc299e2099c8ca

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Citations in the corpus

Systemic Risk Contributions (2011, unknown): “In addition, Billio et al. (2010) studied five systemic risk measures based on a statistical analysis of equity returns. expected shortfall (MES) proposed by Acharya et al. (2010).”
Measuring systemic risk in the European banking sector: a copula CoVaR approach (2017, background): “An extensive survey of the main quantitative measures of systemic risk in the literature can be found in Bisias et al. (2012). An alternative measure of systemic risk is the Conditional Value-at-Risk (CoVaR) of Adrian and Brunnermeier (2016), which attempts to capture risk spillovers among financial”
Banks’ Noninterest Income and Systemic Risk (2020, unknown): “Our sample is from 1986 to 2017 and consists of an unbalanced panel of 7 Giglio, Kelly, and Pruitt (2016) find that systemic risk measures have a strong association with the downside risk of future macroeconomic shocks, whereas Benoit et al. (2017) and Kupiec and Guntay (2016) find these systemic…”
CISS - A Composite Indicator of Systemic Stress in the Financial System (2012, unknown): “While it would be unrealistic to expect that such a highly condensed composite index can sufficiently characterise something as complex as systemic risk (Billio et al. 2011), FSIs still have their merits.”
Financial Connections and Systemic Risk (2010, background): “For example, Boyson, Stahel and Stulz (2008) provide evidence of such externalities within the hedge fund sector, while 5 Billio et al. (2010) measure the interconnectedness among hedge funds, banks, brokers, and insurance companies and their impact on systemic risk.”
Syndication, Interconnectedness, and Systemic Risk (2018, unknown): “…Saunders c, Sascha Steffen d,∗ a Washington University, St. Louis, United States b University of Mannheim & ZEW, Germany c Stern School of Business, New York University, United States d Frankfurt School of Finance and Management, Adickesallee 32-34, 60325, Frankfurt, Germany a r t i c l e i n f o”