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American Economic Review Vol. 106 No. 7 2016

CoVaR

Tobias Adrian1; Markus K. Brunnermeier2

1 Federal Reserve Bank of New York, Research and Statistics Group, 33 Liberty Street, New York, NY 10045 (e-mail: ) · 2 Bendheim Center for Finance, Department of Economics, Princeton University, Princeton, NJ 08544, NBER, CEPR, and CESIfo (e-mail: )

Abstract

We propose a measure of systemic risk, Δ CoVaR, defined as the change in the value at risk of the financial system conditional on an institution being under distress relative to its median state. Our estimates show that characteristics such as leverage, size, maturity mismatch, and asset price booms significantly predict Δ CoVaR. We also provide out-of-sample forecasts of a countercyclical, forward-looking measure of systemic risk, and show that the 2006:IV value of this measure would have predicted more than one-third of realized Δ CoVaR during the 2007–2009 financial crisis.

DOI
10.1257/aer.20120555
Volume
106
Issue
7
Pages
1705-1741
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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