106 research outputs found

    Options-based systemic risk, financial distress, and macroeconomic downturns

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    We extract an option-implied measure for systemic risk, the Systemic Options Value-at-Risk (SOVaR), from put option prices that can capture the buildup stage of systemic risk in the financial sector earlier than the standard systemic risk measures (SRMs). Our measure exhibits more timely early warning signals of main events around the global financial crisis than the main SRMs. SOVaR shows significant predictive power for macroeconomic downturns as well as future recessions up to one year ahead. Our results are robust to various specifications, breakdowns of financial sectors, and controlling for other main risk measures proposed in the literature

    The Interconnectedness Between Green Finance Indexes and Other Important Financial Variables

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    In this article, the authors explore the degree of interconnectedness between stock indexes adjusted for green revenues of companies from major economies and various other important macroeconomic and financial variables. For the most complex model considered, the analysis indicates that the green revenue index for China is directly related to the green revenue indexes of the US, Europe and UK, only to Apple but not to Microsoft, and to none of the macroeconomic variables included in the study. The analysis shows that gold price risk is orthogonal on climate change risk. Oil prices and international bond prices seem to impact the green revenues of companies in China and the UK only through the related green revenues of the intermediary companies in the US and Europe

    Asymmetric Network Connectedness of Fears

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    Abstract This paper introduces forward-looking measures of the network connectedness of fears in the financial system arising due to the good and bad beliefs of market participants about uncertainty that spreads unequally across a network of banks. We argue that this asymmetric network structure extracted from call and put traded option prices of the main U.S. banks contains valuable information for predicting macroeconomic conditions and economic uncertainty, and it can serve as a tool for forward-looking systemic risk monitoring.</jats:p

    Risk Spillovers and Interconnectedness between Systemically Important Institutions

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    In this paper, we gauge the degree of interconnectedness and quantify the linkages between global and other systemically important institutions, and the global financial system. We document that the two groups and the financial system become more interconnected during the global financial crisis when linkages across groups grow. In contrast, during tranquil times linkages within groups prevail. Global systemically important banks (G-SIBs) contribute most to system-wide distress but are also most exposed. There are more links coming from G-SIBs to other systemically important institutions (O-SIIs) than the other way around, confirming the role of G-SIBs as major risk transmitters in the financial system. The two groups and the global financial system tend to co-vary for periods up to 60 days Prior to their official designation as G-SIBs or O-SIIs, the prevalent news sentiment about these institutions (we measure with a textual analysis) was negative. Importantly, the systemic importance and exposure of G-SIBs and O-SIIs is perceived differently by the Financial Stability Board (FSB) and the European Banking Authority (EBA)
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