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Federal Reserve Bank of New York
Staff Reports
CoVaR
Tobias Adrian
Markus K. Brunnermeier
Abstract

We propose a measure for systemic risk, ΔCoVaR, defined as the difference between the conditional value at risk (CoVaR) of the financial system conditional on an institution being in distress and the CoVaR conditional on the median state of the institution. Our ΔCoVaR estimates show that characteristics such as leverage, size, maturity mismatch, and asset price booms significantly predict systemic risk contribution. We provide out-of-sample forecasts of a countercyclical, forward-looking measure of systemic risk and show that the 2006:Q4 value of this measure would have predicted more than one-third of realized ΔCoVaR during the financial crisis.


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Tobias Adrian & Markus K. Brunnermeier, CoVaR, Federal Reserve Bank of New York, Staff Reports 348, 2008, revised 01 Sep 2014.
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Keywords: value at risk; systemic risk; risk spillovers; financial architecture
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