Applying CoV aR to Measure Systemic Market Risk: the Colombian Case


ABSTRACT In Colombia, the exposition to market risk has increased significantly since 2009. Nonetheless, the risk codependence among agents has not been analyzed yet from the perspective of this risk. Therefore, this paper presents an approach to estimate such relevance based on CoV aR and quantile regressions. This methodology is flexible enough to allow the estimation of the systemic market risk contribution of banks, pension funds, and between different types of financial institutions. Results suggest that risk codependence among entities increases during distress periods.

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    ABSTRACT: Financial contagion is modeled as an equilibrium phenomenon. Because liquidity preference shocks are imperfectly correlated across regions, banks hold interregional claims on other banks to provide insurance against liquidity preference shocks. When there is no aggregate uncertainty, the first-best allocation of risk sharing can be achieved. However, this arrangement is financially fragile. A small liquidity preference shock in one region can spread by contagion throughout the economy. The possibility of contagion depends strongly on the completeness of the structure of interregional claims. Complete claims structures are shown to be more robust than incomplete structures.
    Journal of Political Economy 01/2000; DOI:10.1086/262109 · 2.90 Impact Factor
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    ABSTRACT: This study uses bivariate extremal dependence measures, based on the number of equity return co-exceedances in two markets, to quantify both negative and positive equity returns contagion in mature and emerging equity markets during the past decade. The results indicate (a) higher contagion for negative returns than for positive returns; (b) a secular increase in contagion in Latin America not matched in other regions; (c) global increases in contagion following the 1998 financial crises; and (d) that the use of simple correlations as a proxy for contagion could be misleading, as the former exhibit low correlation with extremal dependence measures of contagion.
    07/2002; DOI:10.2139/ssrn.382502
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