Event: The Society of Quantitative Analysts Presents: Does Systemic Risk in the Financial Sector Predict Future Economic Downturns?
Date: Thursday, September 20, 2012
Penn Club of NY
30 West 44th Street
New York, NY10036
The International Association of Financial Engineers is pleased to endorse
About the Event
We derive a measure of aggregate systemic risk, designated CATFIN, that complements bank-specific systemic risk measures by forecasting macro-economic downturns almost six months into the future using out-of-sample tests conducted with US, European and Asian bank data. Consistent with bank "specialness," the CATFIN of both large and small banks forecasts macro-economic declines, whereas a similarly defined measure for both non-financial firms and simulated "fake banks" has no marginal predictive ability. The predictive power of CATFIN for future economic downturns remains strong after controlling for leverage, business cycle variables, persistence in real economic activity, bank interconnectedness, firm size, lagged return, volatility, skewness, and the market beta of financial firms. High levels of systemic risk in the banking sector, as measured by CATFIN, are shown to impact the macro-economy through aggregate lending activity. A conditional inter-temporal asset pricing model shows that CATFIN is priced for financial firms, but not for non-financial firms.
About Dr. Linda Allen
Dr. Linda Allen holds the William F. Aldinger Chair in Banking and Finance at Baruch College, City University of New York. Her broad areas of research are risk measurement and management focusing on systemic risk, credit risk and operational risk; the evolution of financial markets and bank regulation; and the organization of financial institutions.
Professor Allen's latest book Credit Risk Measurement In and Out of Crisis: New Approaches to Value at Risk and Other Paradigms, 3rd edition (Wiley, 2010) describes her perspective on the global financial crisis that began in 2007, as well as deconstructs credit risk measurement models commonly used by bankers and other finance professionals. She is also the author of Capital Markets and Institutions: A Global View (Wiley, 1997) and co-author of Understanding Market, Credit and Operational Risk (Blackwell, 2004). She is an associate editor of the Journal of International Business Studies, Journal of Economics and Business, Multinational Finance Journal, Journal of Multinational Financial Management and The Financier and has published extensively in top academic journals in finance and economics. Along with her consulting in securities litigation, she has lectured and advised all over the world on topics of risk measurement and management, banking trends and financial market development.