A framework for measuring and predicting system risk with the conditional value at risk approach

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BABAJANI JAFAR; Taghavi Fard Mohammad Taghi; GHAZALI AMIN

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Journal: FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES) Year:2018 | Volume:11 | Issue:39 Page(s): 15-36

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Title

A framework for measuring and predicting system risk with the conditional value at risk approach

Author(s)

BABAJANI JAFAR | Taghavi Fard Mohammad Taghi | GHAZALI AMIN | Issue Writer Certificate

Keywords

systemic riskQ2

systemic risk measurementQ2

prediction of systemic riskQ2

conditional value at risk (CoVaR)Q2

macro-prudential policiesQ2

Abstract

In recent years with the increasing integration and innovation in financial markets, concerns about the overall stability of the financial system has increased and the concept of systemic risk has become more important. systemic risk is the risk imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a crisis in the entire system or market. In this study, we presented a framework for measuring and predicting systemic risk in the capital market of Iran using conditional value at risk approach (CoVaR). On this basis, Δ CoVaR as a measure of systematic risk using quintile regression based on a set of state variables that indicates changes in the distribution of asset returns has been estimated. As well as to enhance the accuracy of the estimate, the research variables modeled after the conditional autoregressive value at risk model (CAViaR) has been developed and some Lagged firm specific characteristic has also been added. In order to test the validity of the model back testing methods have been used. On the other hand, The potential for systemic risk increases when volatility decreases (volatility paradox). In this study, we try to predict systemic risk by take advantage of the panel structure of the data and the relationship between Δ CoVaR and firm-specific variables that are available in certain sections.

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APA: Copy

BABAJANI, JAFAR, Taghavi Fard, Mohammad Taghi, & GHAZALI, AMIN. (2018). A framework for measuring and predicting system risk with the conditional value at risk approach. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), 11(39 ), 15-36. SID. https://sid.ir/paper/200321/en

Vancouver: Copy

BABAJANI JAFAR, Taghavi Fard Mohammad Taghi, GHAZALI AMIN. A framework for measuring and predicting system risk with the conditional value at risk approach. FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES)[Internet]. 2018;11(39 ):15-36. Available from: https://sid.ir/paper/200321/en

IEEE: Copy

JAFAR BABAJANI, Mohammad Taghi Taghavi Fard, and AMIN GHAZALI, “A framework for measuring and predicting system risk with the conditional value at risk approach,” FINANCIAL KNOWLEDGE OF SECURITY ANALYSIS (FINANCIAL STUDIES), vol. 11, no. 39 , pp. 15–36, 2018, [Online]. Available: https://sid.ir/paper/200321/en

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