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A Study of the Systemic Risk in the Japanese Banking System - An application of the CoVaR method

Wu, Qian LU (2015) NEKN02 20151
Department of Economics
Abstract
CoVaR is one of the pioneering systemic risk measures proposed during the financial turmoil of 2008, introduced by Adrian and Brunnermeier (2008). It is based on the familiar risk measurement Value-at-Risk (VaR). In this thesis we apply both the time-invariant and time-varying CoVaR model to econometrically quantify the systemic risk in the Japanese banking sector. Specifically we study the systemic risk that individual financial institutions have on the whole Japanese banking system and the systemic linkage among different financial institutions. We use publicly traded daily equity data from the Tokyo Stock Exchange Market (TSE) spanning from 2001 04 02 to 2015 01 31 of the three biggest Japanese bank holding companies: Mitsubishi, Mizuho... (More)
CoVaR is one of the pioneering systemic risk measures proposed during the financial turmoil of 2008, introduced by Adrian and Brunnermeier (2008). It is based on the familiar risk measurement Value-at-Risk (VaR). In this thesis we apply both the time-invariant and time-varying CoVaR model to econometrically quantify the systemic risk in the Japanese banking sector. Specifically we study the systemic risk that individual financial institutions have on the whole Japanese banking system and the systemic linkage among different financial institutions. We use publicly traded daily equity data from the Tokyo Stock Exchange Market (TSE) spanning from 2001 04 02 to 2015 01 31 of the three biggest Japanese bank holding companies: Mitsubishi, Mizuho and Sumitomo. The TOPIX BANKS index is used as a proxy for the banking system of Japan in the thesis. We found Mizuho to be the riskiest bank in isolation as measured by VaR, but in contrast it has the least contribution to the systemic risk of the banking system. Furthermore we found a greater difference between the systemic risk of the banks using 1% quantiles compared to using 5% quantiles. Examining the pair-wise systemic linkages among the three banks, we find the strongest links to be the systemic risk impact that Sumitomo has on Mizuho and Mitsubishi, and the smallest to be the impact Mizuho has on Mitsubishi, suggesting that Sumitomo is a key player in the Japanese banking system. (Less)
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author
Wu, Qian LU
supervisor
organization
course
NEKN02 20151
year
type
H1 - Master's Degree (One Year)
subject
keywords
Japanese Banking System, Japan, Systemic risk, CoVaR
language
English
id
7861050
date added to LUP
2015-09-14 14:41:57
date last changed
2015-09-14 14:41:57
@misc{7861050,
  abstract     = {CoVaR is one of the pioneering systemic risk measures proposed during the financial turmoil of 2008, introduced by Adrian and Brunnermeier (2008). It is based on the familiar risk measurement Value-at-Risk (VaR). In this thesis we apply both the time-invariant and time-varying CoVaR model to econometrically quantify the systemic risk in the Japanese banking sector. Specifically we study the systemic risk that individual financial institutions have on the whole Japanese banking system and the systemic linkage among different financial institutions. We use publicly traded daily equity data from the Tokyo Stock Exchange Market (TSE) spanning from 2001 04 02 to 2015 01 31 of the three biggest Japanese bank holding companies: Mitsubishi, Mizuho and Sumitomo. The TOPIX BANKS index is used as a proxy for the banking system of Japan in the thesis. We found Mizuho to be the riskiest bank in isolation as measured by VaR, but in contrast it has the least contribution to the systemic risk of the banking system. Furthermore we found a greater difference between the systemic risk of the banks using 1% quantiles compared to using 5% quantiles. Examining the pair-wise systemic linkages among the three banks, we find the strongest links to be the systemic risk impact that Sumitomo has on Mizuho and Mitsubishi, and the smallest to be the impact Mizuho has on Mitsubishi, suggesting that Sumitomo is a key player in the Japanese banking system.},
  author       = {Wu, Qian},
  keyword      = {Japanese Banking System,Japan,Systemic risk,CoVaR},
  language     = {eng},
  note         = {Student Paper},
  title        = {A Study of the Systemic Risk in the Japanese Banking System - An application of the CoVaR method},
  year         = {2015},
}