Network, Market, and Book-Based
Systemic Risk Rankings
We propose a new simple ranking method CorrRank to determine the systemic risk of financial institutions.
The method only uses average pairwise stock correlations and turns out to be nearly identical to the more sophisticated network based systemic risk rankings such as Google PageRank.
Using data on the European banking sector, we subsequently investigate whether our network-based measures contain additional information to readily available rankings based on book and/or market-based firm characteristics.
We find that network measures indeed complement currently available systemic risk ranking measures such as VaR- and BetaRank.
In the graph the average scaled rank of the firms from the financial sector is shown. The scaling is done such that the measures lie within the unit interval. If financials are just as systemically important as non-financials, we expect a financial sector average rank of 0.5.
The paper is available for download by clicking here