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A0439
Title: Traffic lights system for systemic Stress: TALIS3 Authors:  Massimiliano Caporin - University of Padova (Italy) [presenting]
Juan-Angel Jimenez-Martin - Complutense of Madrid (Spain)
Laura Garcia-Jorcano - UCM (Spain)
Abstract: A TrAffic LIght System of Systemic Stress (TALIS-cube) is proposed which provides a comprehensive color-based classification that groups companies according to both the level of stress reaction of the system when the company is in distress and the level of stress of the company. Our proposal builds on the Conditional Value-at-Risk measure extended by introducing Filtered Historical Simulation, preferred to the choice of a specific parametric density for the innovations. We classify companies by resorting two loss functions, one for the system and one for each company, evaluated over time and in the cross-section. From the color-based classification of companies we also recover an aggregated index. TALIS-cube can be used to enhance the performance and robustness of current systemic risk measures. We provide an empirical analysis on the US market and several robustness checks evaluating different underlying models driving variance and correlation dynamic and different tuning parameters on the loss functions and company rankings.