We propose to pool alternative systemic risk rankings for financial institutions using the method of principal components. The resulting overall ranking is less affected by estimation uncertainty and model risk. We apply our methodology to disentangle the common signal and the idiosyncratic components from a selection of key systemic risk rankings that have been proposed recently. We use a sample of 113 listed financial sector firms in the European Union over the period 2002–2013. The implied ranking from the principal components is less volatile than most individual risk rankings and leads to less turnover among the top ranked institutions. We also find that price-based rankings and fundamentals-based rankings deviated substantially and for a prolonged time in the period leading up to the financial crisis. We test the adequacy of our newly pooled systemic risk ranking by relating it to credit default swap premia.

The information in systemic risk rankings / Nucera, FEDERICO CALOGERO; Schwaab, Bernd; Koopman Siem, Jan; Lucas, André. - In: JOURNAL OF EMPIRICAL FINANCE. - ISSN 0927-5398. - 38:(2016), pp. 461-475. [10.1016/j.jempfin.2016.01.002]

The information in systemic risk rankings

NUCERA, FEDERICO CALOGERO;
2016

Abstract

We propose to pool alternative systemic risk rankings for financial institutions using the method of principal components. The resulting overall ranking is less affected by estimation uncertainty and model risk. We apply our methodology to disentangle the common signal and the idiosyncratic components from a selection of key systemic risk rankings that have been proposed recently. We use a sample of 113 listed financial sector firms in the European Union over the period 2002–2013. The implied ranking from the principal components is less volatile than most individual risk rankings and leads to less turnover among the top ranked institutions. We also find that price-based rankings and fundamentals-based rankings deviated substantially and for a prolonged time in the period leading up to the financial crisis. We test the adequacy of our newly pooled systemic risk ranking by relating it to credit default swap premia.
2016
Systemic risk contribution; Risk rankings; Forecast combination; Financial regulation; Banking supervision
The information in systemic risk rankings / Nucera, FEDERICO CALOGERO; Schwaab, Bernd; Koopman Siem, Jan; Lucas, André. - In: JOURNAL OF EMPIRICAL FINANCE. - ISSN 0927-5398. - 38:(2016), pp. 461-475. [10.1016/j.jempfin.2016.01.002]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/171621
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