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Federal Reserve Bank of New York
Staff Reports
CoVaR
Tobias Adrian
Markus K. Brunnermeier
Staff Report no. 348
September 2008
Revised September 2011
This paper presents preliminary findings and is being distributed to economists
and other interested readers solely to stimulate discussion and elicit comments.
The views expressed in the paper are those of the authors and are not necessarily
reflective of views at the Federal Reserve Bank of New York or the Federal
Reserve System. Any errors or omissions are the responsibility of the authors.
CoVaR
Tobias Adrian and Markus K. Brunnermeier
Federal Reserve Bank of New York Staff Reports, no. 348
September 2008; revised September 2011
JEL classification: G01, G10, G18, G20, G28, G32, G38
Abstract
We propose a measure for systemic risk: CoVaR, the value at risk (VaR) of the financial
system conditional on institutions being in distress. We define an institution’s contribution
to systemic risk as the difference between CoVaR conditional on the institution being in
distress and CoVaR in the median state of the institution. From our estimates of CoVaR
for the universe of publicly traded financial institutions, we quantify the extent to which
characteristics such as leverage, size, and maturity mismatch predict systemic risk
contribution. We also provide out-of-sample forecasts of a countercyclical, forwardlooking
measure of systemic risk and show that the 2006:Q4 value of this measure would
have predicted more than half of realized covariances during the financial crisis.
Key words: value at risk, systemic risk, risk spillovers, financial architecture
Adrian: Federal Reserve Bank of New York (e-mail: tobias.adrian@ny.frb.org). Brunnermeier:
Princeton University, NBER, CEPR, CESifo (e-mail: markus@princeton.edu). Special thanks
go to Daniel Green and Hoai-Luu Nguyen for outstanding research assistance. The authors
also thank Paolo Angelini, Gadi Barlevy, Stephen Brown, René Carmona, Jon...