Implied Risk Exposures

Sylvain Benoît (1) , Christophe Hurlin (1) , Christophe Pérignon (2)

1 LEO - Laboratoire d'économie d'Orleans [2008-2011]
2 GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC

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.

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

Domaines: Economies et finances

Sylvain Benoît, Christophe Hurlin, Christophe Pérignon. Implied Risk Exposures. 2014. ⟨halshs-00836280v3⟩