Market-based systemic risk metrics ‘crucial’ for supervisors
Paper finds measures are effective at predicting crises in the US over a long period
Measures of systemic risk based on market indicators show “substantial and robust predictive power” ahead of financial crises in the US, making them a “crucial” tool for supervisors, new research finds.
Viral Acharya, Markus Brunnermeier and Diane Pierret evaluate four measures of systemic risk, each based on US financial firms’ stock return co-movements with market- or sector-wide returns under stress. They test the metrics on data from 1927 to 2023.
The results – published in a working paper by
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