Topic
Financial risk
About: Financial risk is a research topic. Over the lifetime, 11899 publications have been published within this topic receiving 231404 citations. The topic is also known as: economic risk.
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377 citations
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TL;DR: The authors showed that even though diversification reduces each institution's individual probability of failure, it makes systemic crises more likely, and that full diversification is no longer desirable as a result and the optimal degree of diversification may be arbitrarily low.
376 citations
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TL;DR: Using a novel dataset covering China’s CSI300 constituents, it is shown high-ESG portfolios generally outperform low- ESG portfolios and the role of ESG performance is attenuated in ’normal’ times, confirming its incremental importance during crisis.
374 citations
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TL;DR: In this article, the authors investigate whether U.S. bank holding companies with strong and independent risk management functions had lower aggregate risk and downside risk and find that BHCs with a high RMI had lower exposures to mortgage-backed securities and risky trading assets, were less active in trading off-balance sheet derivatives, and generally fared better in terms of operating performance and lower downside risk during the crisis years (2007 and 2008).
Abstract: In this paper, we investigate whether U.S. bank holding companies (BHCs) with strong and independent risk management functions had lower aggregate risk and downside risk. We hand-collect information on the organization structure of the 75 largest publicly-listed BHCs, and use this information to construct a Risk Management Index (RMI) that measures the strength of organizational risk controls at these institutions. We find that BHCs with a high RMI in the year 2006, i.e., before the onset of the financial crisis, had lower exposures to mortgage-backed securities and risky trading assets, were less active in trading off-balance sheet derivatives, and generally fared better in terms of operating performance and lower downside risk during the crisis years (2007 and 2008). In a panel spanning 8 years, we find that BHCs with higher RMIs had lower aggregate risk and downside risk, and higher stock returns, after controlling for size, profitability, a variety of risk characteristics, corporate governance, executive compensation, and BHC fixed effects. This result holds even after controlling for any simultaneity bias. Overall, these results suggest that strong internal risk controls are effective in lowering risk at banking institutions.
368 citations
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TL;DR: In this paper, the authors compare two polar extremes of the structure of financial systems in different countries: the German model and the U.S. model, where intermediaries predominate.
365 citations