Abstract
The aim of the paper is to present and discuss an alternative method of calculating the CoVaR of the banking system. The authors build and empirically utilise the measure of systemic risk, which is based on the traditional CoVaR approach, as proposed by Adrian and Brunenmeier (CoVaR. Staff Report No. 348, Federal Reserve Bank of New York, 2008 [revised September 2014]; CoVaR. NBER Working Paper No. 17454, National Bureau of Economic Research, 2011; Am Econ Rev 106:1705–1741, 2016), but uses market-based data (instead of the book values) for calculation. The assumptions of this method, among all else are that 1) the aspects of systemic risk which closely relate to financial system stability, for relatively small financial systems, where the banking sector is the main provided of funding and liquidity, may be modelled with banking-sector-based methods; and 2) the stock market is efficient enough to price the risk related to those financial institutions, whose stocks are quoted on the relevant stock exchange. The empirical research is carried on the example of Poland, as in the authors opinion, also following the literature, the two mentioned assumptions hold for this particular country. The paper concludes with ideas for future research, including further development of the proposed method to include institutions other than banks, and a range of other central European countries for which this method is applicable.
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Notes
- 1.
Maximum period where the data is available for all the studied institutions.
- 2.
Weights in the index are the same as in the WIG index portfolio. It is an income-based index and thus it accounts for both prices of underlying shares and the dividend, as well as the pre-emptive rights income.
References
Adrian T, Brunnermeier MK (2016) CoVaR. Am Econ Rev 106(7):1705–1741
Adrian T, Brunnermeier MK (2011) CoVaR. NBER Working Paper No. 17454, National Bureau of Economic Research
Adrian T, Brunnermeier MK (2008 [revised September 2014]) CoVaR. Staff Report No. 348, Federal Reserve Bank of New York
Benoit S, Colliard J-E, Hurlin C, Perignon C (2015) Where the risks lie: a survey on systemic risk. HAL Paper No. 01142014, December
Jorion P (2006) Value at risk: the new benchmark for managing financial risk. McGraw-Hill, New York
Thomson Reuters DataStream. WUE Library: on-site access. Accessed 31 Dec 2015
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Karaś, M., Szczepaniak, W. (2017). Measuring Systemic Risk with CoVaR Using a Stock Market Data Based Approach. In: Jajuga, K., Orlowski, L., Staehr, K. (eds) Contemporary Trends and Challenges in Finance. Springer Proceedings in Business and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-54885-2_13
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DOI: https://doi.org/10.1007/978-3-319-54885-2_13
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