CoVaR

Abstract

We propose a measure for systemic risk: CoVaR, the value at risk (VaR) of the financial system conditional on institutions being under distress. We define an institution's contribution to systemic risk as the difference between CoVaR conditional on the institution being under distress and the CoVaR in the median state of the institution. From our estimates of CoVaR for the universe of publicly traded financial institutions, we quantify the extent to which characteristics such as leverage, size, and maturity mismatch predict systemic risk contribution. We also provide out of sample forecasts of a countercyclical, forward looking measure of systemic risk and show that the 2006Q4 value of this measure would have predicted more than half of realized covariances during the financial crisis.

How strong is the linkage between tourism and economic growth in Europe?

“…In this paper, we provide some interesting ideas for further research. Although it is beyond our scope, future work could further investigate the tourism-economic growth relationship using a variety of other timevarying measures such as multivariate GARCH models (the DCC and BEKK of Engle, 2002;Engle and Kroner, 1995, , respectively) and the CoVaR measure of Adrian and Brunnermeier (2008). Another avenue for future research is the examination of the determinants of the time-varying relationship between the tourism sector and the economy, as well as, the development of a theoretically coherent framework explaining the tourismeconomic growth nexus.…”

Network Structure and Systemic Risk in Banking Systems

“…The definition of this indicator takes into account both common market shocks to portfolios and contagion through counterparty exposures. Contrarily to indicators of systemic risk purely based on market data (Acharya et al, 2010;Adrian and Brunnermeier, 2008;Zhou et al, 2009), our metric is a forward-looking measure of systemic importance is based on exposures, which represent potential losses in case of default. We build on methods proposed in Cont and Moussa (2010) for estimating and analyzing this indicator.…”

Granular institutional investors and global market interdependence

“…Built upon the granular view of Gabaix (2011) and the CoVaR (conditional value-at-risk) methodology of Adrian and Brunnermeier (2011), this paper sheds new light on the association between idiosyncratic shocks to large financial institutions, 'the granular institutional investors', and global market interdependence as well as market aggregate risk. Gabaix's granular view suggests that the idiosyncratic micro-level shocks are not cancelled out at the aggregate level; instead, they have the potential to generate nontrivial aggregate shocks, and via general equilibrium, all market players.…”

“…The first is about the systematic importance of individual financial institution. Adrian and Brunnermeier (2011) document that bigger institutions post greater risk on the financial system using a sample of commercial banks, broker dealers, insurance companies, and real estate companies in the US. Similar evidence is found in the context of international mutual funds by Jinjarak and Zheng (2012) and in the banking sector of Asia and the Pacific by Huang et al (2012).…”

“…Adrian and Brunnermeier (2011) apply CoVaR to measure the systemic risk contribution of individual financial institutions. Several studies extend this CoVaR method and its related versions to investigate different aspects of interdependence in the financial market.…”