Abstract
We investigate the dynamics of systemic risk of European companies using an approach that merges paradigmatic risk measures such as Marginal Expected Shortfall, CoVaR, and Delta CoVaR, with a Bayesian entropy estimation method. Our purpose is to bring to light potential spillover effects of the entropy indicator for the systemic risk measures computed on the 24 sectors that compose the STOXX 600 index. Our results show that several sectors have a high proclivity for generating spillovers. In general, the largest influences are delivered by Capital Goods, Banks, Diversified Financials, Insurance, and Real Estate. We also bring detailed evidence on the sectors that are the most pregnable to spillovers and on those that represent the main contributors of spillovers.
Highlights
Despite the lack of general agreement on a plain, ubiquitous definition, systemic risk lures the attention of regulators and all market participants
The recent financial crisis has clearly shown the extorsions in financial and macroeconomic stability that spun from systemic events
This resulted in a cogent and well-grounded vein of interest deriving from both academia and policy-making circles
Summary
Despite the lack of general agreement on a plain, ubiquitous definition, systemic risk lures the attention of regulators and all market participants. A wide range of indicators accounts for the various facets of systemic risk and they generally capture loss behavior and connections. The concept of systemic risk has received a heavy dose of both theoretical and empirical attention, given its character and the realities observed during the most recent financial crisis. An area of consensus in the literature germinates on the idea that the root of systemic risk derives from the intricate web of interconnections endemic to modern financial institutions that acts as a propagation channel for a given shock—see for example Wang et al [1] or Gofman [2]. As pointed out by numerous studies among which we mention
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
