Empirical Studies on Systemic Risk: Implications and Determinants

Abstract

This thesis is composed of three separate empirical studies focusing on financial institutions and systemic risk. The aim of the studies is to investigate the possible implications and determinants of financial institutions’ systemic risk. Study I analyses the role of systemic risk in how US financial sector stocks react to interest rate changes, under different macroeconomic conditions. Using an event study methodology, we document that systemic risk has a significant impact on the reaction of financial stocks to monetary policy announcements. Overall, our findings suggest that financial institutions with high systemic risk tend to benefit from the “Too-Big-To-Fail” advantage whenever interest rates are unexpectedly high, or the yield curve is relatively flat (i.e. the macroeconomic risk is high). Study II investigates the bidirectional relationship between systemic risk and bank liquidity creation in a Bayesian panel vector autoregressive framework. Analysing a sample of US banks, we find that liquidity creation has a significant impact on bank systemic risk. Although different forms of liquidity creation affect systemic risk in opposite directions, the overall effect tends to be positive. Furthermore, we find that shocks to systemic risk also lead to significant rises in liquidity creation, suggesting strong feedback effects between liquidity creation and systemic risk. Study III aims to examine the potential consequences of the COVID-19 crisis for idiosyncratic and systemic risk in the US financial system. We find that both idiosyncratic and systemic risk of the large financial institutions in the US have substantially increased in the wake of the COVID-19 pandemic. Our results show that the rise in financial system risk in this period has been driven by the number of COVID-19 infections as well as the government’s restrictive policies. A more detailed abstract of each study can be found on the first page of each study.

Divisions: Aston University (General)
Additional Information: © Afshin Sabri, 2020 asserts their moral right to be identified as the author of this thesis. This copy of the thesis has been supplied on condition that anyone who consults it is understood to recognise that its copyright rests with its author and that no quotation from the thesis and no information derived from it may be published without appropriate permission or acknowledgement. If you have discovered material in Aston Publications Explorer which is unlawful e.g. breaches copyright, (either yours or that of a third party) or any other law, including but not limited to those relating to patent, trademark, confidentiality, data protection, obscenity, defamation, libel, then please read our Takedown Policy and contact the service immediately.
Institution: Aston University
Uncontrolled Keywords: systemic risk,financial stocks,monetary policy,liquidity creation,COVID-19
Last Modified: 08 Dec 2023 08:58
Date Deposited: 10 Sep 2021 11:46
Completed Date: 2020
Authors: Sabri, Afshin

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