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Assessing financial distress dependencies in OTC markets: a new approach using trade repositories data

Bonollo, Michele and Crimaldi, Irene and Flori, Andrea and Gianfagna, Laura and Pammolli, Fabio Assessing financial distress dependencies in OTC markets: a new approach using trade repositories data. Financial Markets and Portfolio Management, 30 (4). pp. 397-426. ISSN 1934-4554 (2016)

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In this paper, we study the relationships among financial market sub-segments as a way to identify potential financial distress through increased co-movements among them. To study how sub-markets are mutually co-dependent, we combine granular data on over-the-counter derivatives by trade repositories and the joint probability of distress (JPoD) approach introduced by the International Monetary Fund. We define an indicator that combines several distress drivers and observe that results on co-dependencies are similar to those that would be expected: similarities between financial and contractual terms seem to be responsible for stronger co-movements among sub-markets. However, high values for JPoD even in correspondence of quite dissimilar sub-markets suggest the presence of other drivers that should be investigated in future research. To the best of our knowledge, this is the first empirical study on systemic risk assessment based on micro-founded trade repositories’ data on interest rate swaps.

Item Type: Article
Identification Number: 10.1007/s11408-016-0275-7
Projects: CRISIS Lab
Uncontrolled Keywords: Financial distress interdependence, Joint probability of distress, Interest rate swaps, Systemic risk, Micro-founded trade repositories’ data
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
H Social Sciences > HG Finance
Research Area: Economics and Institutional Change
Depositing User: Irene Crimaldi
Date Deposited: 21 Nov 2016 12:16
Last Modified: 21 Nov 2016 12:16
URI: http://eprints.imtlucca.it/id/eprint/3598

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