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Implied Risk Exposures

Benoit, Sylvain; Hurlin, Christophe; Pérignon, Christophe (2015), Implied Risk Exposures, Review of Finance, 19, 6, p. 2183-2222. 10.1093/rof/rfu050

Type
Article accepté pour publication ou publié
Date
2015
Journal name
Review of Finance
Volume
19
Number
6
Publisher
Kluwer Academic Publishers
Pages
2183-2222
Publication identifier
Metadata
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Author(s)
Benoit, Sylvain

Hurlin, Christophe
Laboratoire d'économie d'Orleans [2008-2011] [LEO]
Pérignon, Christophe
Groupement de Recherche et d'Etudes en Gestion à HEC [GREGH]
Abstract (EN)
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 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 (i) changes in risk exposures are negatively correlated with market volatility and (ii) changes in risk exposures are positively correlated across banks, which is consistent with banks exhibiting commonality in trading.
Subjects / Keywords
Herding; Risk Disclosure; (Stressed) Value-at-Risk; Regulatory Capital
JEL
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
G28 - Government Policy and Regulation
G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages