Journal
AMERICAN ECONOMIC REVIEW
Volume 106, Issue 7, Pages 1705-1741Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/aer.20120555
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Funding
- Institute for Quantitative Investment Research Europe
- Alfred P. Sloan Foundation
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We propose a measure of systemic risk, Delta CoVaR, defined as the change in the value at risk of the financial system conditional on an institution being under distress relative to its median state. Our estimates show that characteristics such as leverage, size, maturity mismatch, and asset price booms significantly predict Delta CoVaR. We also provide out-of-sample forecasts of a countercyclical, forward-looking measure of systemic risk, and show that the 2006:IV value of this measure would have predicted more than one-third of realized Delta CoVaR during the 2007-2009 financial crisis.
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