Extending a Market-based Measure of Systemic Risk

Julia Zima & Daniel Heinrichsen

Studenteropgave: Kandidatafhandlinger

Abstrakt

This thesis extends a market-based measure of systemic risk, developed by Acharya et al. (2016). Their systemic risk measure, the systemic expected shortfall (SES) has three components: a firm’s marginal risk contribution (MES), leverage and excess distress costs. In their empirical implementation, the authors leave out the estimation of excess distress costs. The excess costs of financial distress can be approximated through the distress costs during the 5% worst market days scaled by equity capital to account for firm size. We estimate the expected costs of financial distress using an approach by Breitkopf and Elsas (2012) who develop a framework to directly estimate expected distress costs from CDS and stock price data. We find that the expected excess cost of financial distress scaled by equity capital does not explain returns during the crisis nor has it any explanatory power in explaining the outcome of the 2009 SCAP stress test. However, we find that when changing the scaling to unlevered asset value, distress costs have significant explanatory power even when measured two years before the crisis.

UddannelserCand.merc.fin Finance and Investments, (Kandidatuddannelse) Afsluttende afhandling
SprogDansk
Udgivelsesdato2017
Antal sider136
VejledereDavid Lando