TY - JOUR
T1 - Measuring systemic risk in the Korean banking sector via dynamic conditional correlation models
AU - Yun, Jaeho
AU - Moon, Hyejung
PY - 2014/4
Y1 - 2014/4
N2 - In this paper we study systemic risks in the Korean banking sector by using two famous systemic risk measures - the MES (marginal expected shortfall) and CoVaR. To compute both measures we employ Engle's dynamic conditional correlation model. Our empirical analysis shows, first, that although these two systemic risk measures differ in defining the contributions to systemic risk, both are qualitatively very similar in explaining the cross-sectional differences in systemic risk contributions across banks. Second, we find that systemic risk contributions are closely related to certain bank characteristic variables (e.g., VaR (value at risk), size and leverage ratio). However, there are differences between the cross-sectional and the time series dimensions in the effects of these variables. Last, using a threshold VAR model, we suggest an overall systemic risk measure - the aggregate MES - and its associated threshold value for use as an early warning indicator.
AB - In this paper we study systemic risks in the Korean banking sector by using two famous systemic risk measures - the MES (marginal expected shortfall) and CoVaR. To compute both measures we employ Engle's dynamic conditional correlation model. Our empirical analysis shows, first, that although these two systemic risk measures differ in defining the contributions to systemic risk, both are qualitatively very similar in explaining the cross-sectional differences in systemic risk contributions across banks. Second, we find that systemic risk contributions are closely related to certain bank characteristic variables (e.g., VaR (value at risk), size and leverage ratio). However, there are differences between the cross-sectional and the time series dimensions in the effects of these variables. Last, using a threshold VAR model, we suggest an overall systemic risk measure - the aggregate MES - and its associated threshold value for use as an early warning indicator.
KW - CoVaR
KW - DCC (dynamic conditional correlation) model
KW - MES (marginal expected shortfall)
KW - Systemic risk
KW - Threshold VAR
UR - http://www.scopus.com/inward/record.url?scp=84897756176&partnerID=8YFLogxK
U2 - 10.1016/j.pacfin.2014.02.005
DO - 10.1016/j.pacfin.2014.02.005
M3 - Article
AN - SCOPUS:84897756176
SN - 0927-538X
VL - 27
SP - 94
EP - 114
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
IS - 1
ER -