Correlation between the 2014 EU-Wide Stress test and market based measures of systemic risk

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In this paper, we compare the EBA stress test results done in 2014 to market based measures of capital losses which are the Marginal Expected Shortfall ( ), the Systemic Risk Measure ( ) and the Delta Conditional Value-at-Risk ( ). These measures allow us to estimate the expected capital shortfall in case of a crisis. Our sample uses 57 European banks over 22 countries. We find that is the best predictor of systemic risk among the three systemic risk measures since it is the most correlated with stress test results. Furthermore, we focused on the realized outcomes (realized loss, realized return and realized volatility) and compared them to the 2014 EU stress test results.

Author(s):

Sonia Dissem    
Université de Lille_Skema Business School
France