Articles

Implied Risk Exposures

S. BENOIT, C. HURLIN, C. PERIGNON

Review of Finance

octobre 2015, vol. 19, n°6, pp.2183-2222

Départements : Finance, GREGHEC (CNRS)

Mots clés : Herding, Risk Disclosure, (Stressed) Value-at-Risk, Regulatory Capital

http://dx.doi.org/10.2139/ssrn.2267791


We show how to reverse-engineer banks' risk disclosures, such as Value-at-Risk, to obtain an implied measure of their exposures to equity, interest rate, foreign exchange, and commodity risks. Factor Implied Risk Exposures (FIRE) are obtained by breaking down a change in risk disclosure into a market volatility component and a bank-specific risk exposure component. In a study of large US and international banks, we show that (1) changes in risk exposures are negatively correlated with market volatility and (2) changes in risk exposures are positively correlated across banks, which is consistent with banks exhibiting commonality in trading


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