Systemic Risk and the Macroeconomy: An Empirical Evaluation
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Arizona State University (ASU) - Finance Department
January 1, 2015
Fama-Miller Working Paper
Chicago Booth Research Paper No. 12-49
Abstract:
This article evaluates a large collection of systemic risk measures based on their ability to predict macroeconomic downturns. We evaluate 19 measures of systemic risk in the US and Europe spanning several decades. We propose dimension reduction estimators for constructing systemic risk indexes from the cross section of measures and prove their consistency in a factor model setting. Empirically, systemic risk indexes provide significant predictive information out-of-sample for the lower tail of future macroeconomic shocks.
Number of Pages in PDF File: 63
Keywords: systemic risk, measures, quantile regression, predictive regression, macroeconomic downturns
