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Abstract

By utilizing the extreme dependence structure and the conditional probability of joint failure CPJF among risk factors, this paper defines a risk-stability index RSI that quantifies i common distress of risk factors, ii distress between specific risk factors, and iiidistress to a portfolio related to a specific risk factor. The results show that financial stability is a continuum; that U.S. banks tend to cause the most stress to the global financial system as defined herein; and that Asian banks show the most persistence of distress. Further, the panel VAR indicates that -leaning against the wind- reduces the potential instability of a financial system.



Item Type: MPRA Paper -

Original Title: Risk-Factor Portfolios and Financial Stability-

Language: English-

Keywords: Conditional probability of joint failure, contagion, dependence structure, distress, multivariate extreme value theory, panel VAR, persistence-

Subjects: F - International Economics > F1 - Trade > F15 - Economic IntegrationC - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - GeneralE - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the MacroeconomyF - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration-





Author: Garita, Gus

Source: https://mpra.ub.uni-muenchen.de/20366/



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