When Micro Prudence Increases Macro Risk: The Destabilizing Effects of Financial Innovation, Leverage, and Diversification

DOI10.1287/opre.2015.1464zbMath1378.91127OpenAlexW1569467653MaRDI QIDQ3178758

Fulvio Corsi, Fabrizio Lillo, Stefano Marmi

Publication date: 20 December 2016

Published in: Operations Research (Search for Journal in Brave)

Full work available at URL: https://openaccess.city.ac.uk/id/eprint/19451/1/When%20Micro%20Prudence%20increases%20Macro%20Risk.pdf

zbMATH Keywords

financial innovationdiversificationleveragesystemic riskendogenous risk

Mathematics Subject Classification ID

Statistical methods; risk measures (91G70) Microeconomic theory (price theory and economic markets) (91B24) Portfolio theory (91G10)

Related Items (15)

Equilibrium Pricing Under Relative Performance Concerns ⋮ The dynamics of the leverage cycle ⋮ The impact of systemic and illiquidity risk on financing with risky collateral ⋮ Overlapping portfolios, contagion, and financial stability ⋮ Assessing systemic risk due to fire sales spillover through maximum entropy network reconstruction ⋮ Reconstruction methods for networks: the case of economic and financial systems ⋮ Preface to the Special Issue on Systemic Risk: Models and Mechanisms ⋮ Unimodal maps perturbed by heteroscedastic noise: an application to financial systems ⋮ Analysis of Bank Leverage via Dynamical Systems and Deep Neural Networks ⋮ Sudden trust collapse in networked societies ⋮ When panic makes you blind: a chaotic route to systemic risk ⋮ Better to stay apart: asset commonality, bipartite network centrality, and investment strategies ⋮ Speculative behavior and the dynamics of interacting stock markets ⋮ Efficient simulation of Lévy-driven point processes ⋮ Network quantile autoregression

Cites Work

• Eroding market stability by proliferation of financial instruments
• More hedging instruments may destabilize markets
• The impact of systemic and illiquidity risk on financing with risky collateral
• Assessing systemic risk due to fire sales spillover through maximum entropy network reconstruction
• FIRE SALES FORENSICS: MEASURING ENDOGENOUS RISK
• RUNNING FOR THE EXIT: DISTRESSED SELLING AND ENDOGENOUS CORRELATION IN FINANCIAL MARKETS
• Leverage causes fat tails and clustered volatility
• Market procyclicality and systemic risk

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