The Financial Stress Index: Identification of Systemic Risk Conditions

Abstract

This paper develops a financial stress measure for the United States, the Cleveland Financial Stress Index (CFSI). The index is based on publicly available data describing a six-market partition of the financial system comprising credit, funding, real estate, securitization, foreign exchange, and equity markets. This paper improves upon existing stress measures by objectively selecting between several index weighting methodologies across a variety of monitoring frequencies through comparison against a volatility-based benchmark series. The resulting measure facilitates the decomposition of stress to identify disruptions in specific markets and provides insight into historical stress regimes.

Alapletét meghatározásának lehetséges módszertana

“…• Kansas City Financial Stress Index (KCFSI) (Hakkio -Keeton 2009) • Financial Stress Indicator of Canada (FSI) (Illing -Liu 2006) • Composite Indicator of Systemic Stress (CISS) (Holló et al 2012) • Cleveland Financial Stress Index (CFSI) (Oet et al 2015).…”

SAFE: An early warning system for systemic banking risk

“…Building on the research precedent of Liu (2003, 2006), Oet et al (2009Oet et al ( , 2011 define systemic risk as a condition in which the observed movements of financial market components reach certain thresholds and persist. They develop the financial stress index in the U.S. (CFSI) 13 as a continuous index constructed of daily public market data.…”

“…To conserve space, the tables show only information for the explanatory variables that ultimately enter the SAFE model. markets' stress series by Oet et al (2009Oet et al ( , 2011. The present paper contributes a new typology for the drivers of risk in the EWS; its risk model applies a regression approach to explain the financial markets' stress index using optimally lagged institutional data.…”

“…8 Oet et al (2009Oet et al ( , 2011. methods for the preliminary specification of distributed lags in structural models in the absence of theory or information.…”

An Index of Financial Market Stress for the United Kingdom

“…The US Federal Reserve Banks of St. Louis, Kansas and Cleveland remain the pioneers of stress indices. The Cleveland stress index created by Oet et al (2011) parsimoniously represents the trends and dynamics of numerous United States stress indicating variables. Our index is the first of its kind based on UK financial markets.…”