%0 Journal Article %1 Balla2014Tail %A Balla, Eliana %A Ergen, Ibrahim %A Migueis, Marco %D 2014 %J Journal of Financial Stability %K tail-dependence, time-series banks systemic-risk %P 195--209 %R 10.1016/j.jfs.2014.10.002 %T Tail dependence and indicators of systemic risk for large US depositories %U http://dx.doi.org/10.1016/j.jfs.2014.10.002 %V 15 %X Daily stock returns of US depository institutions exhibit strong loss tail dependence in their extremes. Proposed systemic risk indicators capture downturns in the US banking industry well. Proposed firm-level measures of extremal dependence would have been good predictors of the vulnerability of firms to the 2007–2008 financial crisis. The correlation-based measures of Patro et al. (2013) also show good predictive ability. We estimate balance-sheet predictors of extremal dependence. In this study, we investigate the extreme loss tail dependence between stock returns of large US depository institutions. We find that stock returns exhibit strong loss dependence even in their limiting joint extremes. Motivated by this result, we derive extremal dependence-based systemic risk indicators. The proposed systemic risk indicators reflect downturns in the US financial industry very well. We also develop a set of firm-level average extremal dependence measures. We show that these firm-level measures could have been used to identify the firms that were more vulnerable to the 2007–2008 financial crisis. Additionally, we explore the performance of selected systemic risk indicators in predicting the crisis performance of large US depository institutions and find that the average stock return correlations are also good predictors of crisis period returns. Finally, we identify factors predictive of extremal dependence for the US depository institutions in a panel regression setting. Strength of extremal dependence increases with asset size and similarity of financial fundamentals. On the other hand, strength of extremal dependence decreases with capitalization, liquidity, funding stability and asset quality. We believe the proposed indicators have the potential to inform the prudential supervision of systemic risk.

@article{Balla2014Tail, abstract = {{ Daily stock returns of US depository institutions exhibit strong loss tail dependence in their extremes. Proposed systemic risk indicators capture downturns in the US banking industry well. Proposed firm-level measures of extremal dependence would have been good predictors of the vulnerability of firms to the 2007–2008 financial crisis. The correlation-based measures of Patro et al. (2013) also show good predictive ability. We estimate balance-sheet predictors of extremal dependence. In this study, we investigate the extreme loss tail dependence between stock returns of large US depository institutions. We find that stock returns exhibit strong loss dependence even in their limiting joint extremes. Motivated by this result, we derive extremal dependence-based systemic risk indicators. The proposed systemic risk indicators reflect downturns in the US financial industry very well. We also develop a set of firm-level average extremal dependence measures. We show that these firm-level measures could have been used to identify the firms that were more vulnerable to the 2007–2008 financial crisis. Additionally, we explore the performance of selected systemic risk indicators in predicting the crisis performance of large US depository institutions and find that the average stock return correlations are also good predictors of crisis period returns. Finally, we identify factors predictive of extremal dependence for the US depository institutions in a panel regression setting. Strength of extremal dependence increases with asset size and similarity of financial fundamentals. On the other hand, strength of extremal dependence decreases with capitalization, liquidity, funding stability and asset quality. We believe the proposed indicators have the potential to inform the prudential supervision of systemic risk.}}, added-at = {2019-06-10T14:53:09.000+0200}, author = {Balla, Eliana and Ergen, Ibrahim and Migueis, Marco}, biburl = {https://www.bibsonomy.org/bibtex/2b522eade14e883b24d899c2fd9f91d95/nonancourt}, citeulike-article-id = {14025236}, citeulike-linkout-0 = {http://dx.doi.org/10.1016/j.jfs.2014.10.002}, doi = {10.1016/j.jfs.2014.10.002}, interhash = {5c9dd95efd05ccbbf1cf49c21cc87dc9}, intrahash = {b522eade14e883b24d899c2fd9f91d95}, issn = {15723089}, journal = {Journal of Financial Stability}, keywords = {tail-dependence, time-series banks systemic-risk}, month = dec, pages = {195--209}, posted-at = {2017-11-03 16:09:32}, priority = {2}, timestamp = {2019-07-31T12:30:41.000+0200}, title = {{Tail dependence and indicators of systemic risk for large US depositories}}, url = {http://dx.doi.org/10.1016/j.jfs.2014.10.002}, volume = 15, year = 2014 }