European Early Warning System for Systemic Risk –

Project Start: 06/2016
Status: Ongoing
Researchers: Mauro Bernardi, Monica Billio, Massimiliano Caporin, Roberto Casarin, Michele Costola, Lorenzo Frattarolo, Shawkat Hammoudeh, Ahmed Khalifa, Bertrand B. Maillet, Roberto Panzica, Loriana Pelizzon, Erdem Yenerdag
Category: Systemic Risk Lab proposes a new European early warning system (EWS), able to identify and signal economic vulnerabilities in order to allow policy makers to intervene in a timely manner. The ongoing European financial crisis poses a serious challenge to the stability of the euro area and growth prospects in Europe. The aim of the project is to implement a EWS for systemic risk to prevent and mitigate financial instability by exploiting the linkages among the financial markets and the real economy. Given the potentially high and unsustainable costs caused by systemic crises, it is of fundamental importance to establish a comprehensive system of early warning signals and indicators to monitor them. Recent studies suggest that empirical analysis should focus on the macroeconomic and financial shocks transmission across countries, allowing for nonlinear propagation of these shocks. The innovative purpose of EARLINESS is to fill this gap by modelling nonlinear interactions between the financial market and the macroeconomic system. The main challenge is the realization of a comprehensive system able to detect and measure each marginal change in the sources of systemic risk by developing an innovative building block structure. A novel Dynamic Quantile Factors model is introduced to extract the latent signal of systemic risks at micro and macro level from a panel of institutions belonging to the European area and partner countries. The project uses state-of-the-art systemic risk measures and integrates new methodologies in financial econometrics, systemic risk measurement and big data analysis tools. According to the Macroprudential Research Network of the ECB, the implementation of macroprudential policy is still at an early stage and much effort is needed to support policymakers in designing mechanisms for prudential tools. The EARLINESS project can deliver an important contribution to this.

This project is funded by:

Marie Sklodowska-Curie Individual Fellowships

Related Published Papers

Author/s Title Year Research Area Keywords
Massimiliano Caporin, Luca Corazzini, Michele Costola Measuring the Behavioural Component of the S&P 500 and its Relationship to Financial Stress and Aggregated Earnings Surprises
forthcoming in British Journal of Management
2018 Systemic Risk Lab
Massimiliano Caporin, Michele Costola, Gregory Jannin, Bertrand B. Maillet On the (Ab)use of Omega?
Journal of Empirical Finance
2018 Systemic Risk Lab Performance measure Omega Return distribution Risk Stochastic dominance
Monica Billio, Michele Costola, Roberto Panzica, Loriana Pelizzon Systemic risk and financial interconnectedness: network measures and the impact of the indirect effect
Systemic Risk Tomography: Signals, Measurement and Transmission Channels (ISTE Press - Elsevier)
2016 Systemic Risk Lab systemic measures, connectedness measures, financial network, financial institutions, hedge funds, loss measures, quantile regressions, CoVaR, global network measures, local network measures, loss prediction, Settore SECS-P/05 - Econometria

Related Working Papers

No. Author/s Title Year Research Area Keywords
172 Massimiliano Caporin, Michele Costola, Shawkat Hammoudeh, Ahmed Khalifa Systemic risk for financial institutions of major petroleum-based economies: The role of oil 2017 Systemic Risk Lab Systemic Risk, Risk Measurement, VaR, ?CoVaR, Oil, Financial Institutions, Petroleum-based Economies
208 Roberto Casarin, Michele Costola, Erdem Yenerdag Financial Bridges and Network Communities 2018 Systemic Risk Lab Systemic Risk; Financial Institutions; Network Communities; Financial Crises