Empirical Studies on Systemic Risk: Implications and Determinants

  • Afshin Sabri

    Student thesis: Doctoral ThesisDoctor of Philosophy


    This thesis is composed of three separate empirical studies focusing on financial institutions and systemic risk. The aim of the studies is to investigate the possible implications and determinants of financial institutions’ systemic risk.

    Study I analyses the role of systemic risk in how US financial sector stocks react to interest rate changes, under different macroeconomic conditions. Using an event study methodology, we document that systemic risk has a significant impact on the reaction of financial stocks to monetary policy announcements. Overall, our findings suggest that financial institutions with high systemic risk tend to benefit from the “Too-Big-To-Fail” advantage whenever interest rates are unexpectedly high, or the yield curve is relatively flat (i.e. the macroeconomic risk is high).

    Study II investigates the bidirectional relationship between systemic risk and bank liquidity creation in a Bayesian panel vector autoregressive framework. Analysing a sample of US banks, we find that liquidity creation has a significant impact on bank systemic risk. Although different forms of liquidity creation affect systemic risk in opposite directions, the overall effect tends to be positive. Furthermore, we find that shocks to systemic risk also lead to significant rises in liquidity creation, suggesting strong feedback effects between liquidity creation and systemic risk.

    Study III aims to examine the potential consequences of the COVID-19 crisis for idiosyncratic and systemic risk in the US financial system. We find that both idiosyncratic and systemic risk of the large financial institutions in the US have substantially increased in the wake of the COVID-19 pandemic. Our results show that the rise in financial system risk in this period has been driven by the number of COVID-19 infections as well as the government’s restrictive policies.

    A more detailed abstract of each study can be found on the first page of each study.
    Date of Award2020
    Original languageEnglish
    SupervisorMatthew Olczak (Supervisor), Enrico Onali (Supervisor) & Dudley Gilder (Supervisor)


    • systemic risk
    • financial stocks
    • monetary policy
    • liquidity creation
    • COVID-19

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