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Forecasting systemic impact in financial networks

Author

Listed:
  • Hautsch, Nikolaus
  • Schaumburg, Julia
  • Schienle, Melanie
Abstract
We propose a methodology for forecasting the systemic impact of financial institutions in interconnected systems. Utilizing a five-year sample including the 2008/9 financial crisis, we demonstrate how the approach can be used for the timely systemic risk monitoring of large European banks and insurance companies. We predict firms’ systemic relevance as the marginal impact of individual downside risks on systemic distress. So-called systemic risk betas account for a company’s position within the network of financial interdependencies, in addition to its balance sheet characteristics and its exposure to general market conditions. Relying only on publicly available daily market data, we determine time-varying systemic risk networks, and forecast the systemic relevance on a quarterly basis. Our empirical findings reveal time-varying risk channels and firms’ specific roles as risk transmitters and/or risk recipients.

Suggested Citation

  • Hautsch, Nikolaus & Schaumburg, Julia & Schienle, Melanie, 2014. "Forecasting systemic impact in financial networks," International Journal of Forecasting, Elsevier, vol. 30(3), pages 781-794.
    • Handle: RePEc:eee:intfor:v:30:y:2014:i:3:p:781-794
    DOI: 10.1016/j.ijforecast.2013.09.004
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    1. repec:fip:fedhpr:y:2010:i:may:p:65-71 is not listed on IDEAS
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    8. Bernd Schwaab & Andre Lucas & Siem Jan Koopman, 2010. "Systemic Risk Diagnostics," Tinbergen Institute Discussion Papers 10-104/2/DSF 2, Tinbergen Institute, revised 29 Nov 2010.
    9. Nikolaus Hautsch & Julia Schaumburg & Melanie Schienle, 2015. "Financial Network Systemic Risk Contributions," Review of Finance, European Finance Association, vol. 19(2), pages 685-738.
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    More about this item

    Keywords

    Systemic risk network; Prediction; Tail risk; Systemic relevance; Tail risk transmission;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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