Implied Risk Exposures* | Zendy

Sylvain Benoît | Zendy; Christophe Hurlin | Zendy; Christophe Périg | Zendy

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Implied Risk Exposures*

Author(s) -

Sylvain Benoît,

Christophe Hurlin,

Christophe Périg

Publication year - 2015

Publication title -

european finance review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 4.933

H-Index - 61

eISSN - 1573-692X

pISSN - 1382-6662

DOI - 10.1093/rof/rfu050

Subject(s) - volatility (finance) , market risk , foreign exchange , equity (law) , business , foreign exchange risk , monetary economics , financial risk management , financial economics , economics , risk management , econometrics , exchange rate , finance , political science , law

International audienceWe 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 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 (i) changes in risk exposures are negatively correlated with market volatility and (ii) changes in risk exposures are positively correlated across banks, which is consistent with banks exhibiting commonality in trading

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