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The Risks of Financial Institutions$
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Mark Carey and Rene M. Stulz

Print publication date: 2007

Print ISBN-13: 9780226092850

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226092980.001.0001

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PRINTED FROM CHICAGO SCHOLARSHIP ONLINE (www.chicago.universitypressscholarship.com). (c) Copyright University of Chicago Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in CHSO for personal use.date: 17 September 2021

Bank Trading Risk and Systemic Risk

Bank Trading Risk and Systemic Risk

Chapter:
(p.29) 1 Bank Trading Risk and Systemic Risk
Source:
The Risks of Financial Institutions
Author(s):

Philippe Jorion

Publisher:
University of Chicago Press
DOI:10.7208/chicago/9780226092980.003.0002

This chapter provides evidence that practitioner and regulatory use of market value at risk (VaR) measures is not likely to be destabilizing. It specifically presents a review of VaR and herding theories. VaR have become important tools of portfolio management. The VaR-induced herding effect depends on commonalities in the positions in financial institutions. Tests of herding usually focus on portfolio positions for a subgroup of investors. The chapter then addresses the description of the market risk charge. Trading is more profitable, but riskier, than banking activities. Trading by primary dealer subsidiaries has a negative correlation with banking activities. There is no evidence that the post-1998 period has witnessed an increase in volatility. Arguments that bank trading and VaR systems contribute to volatility due to similar positions has no empirical support.

Keywords:   market, value at risk, herding theories, herding effect, financial institutions, portfolio management, market risk charge, trading, bank trading

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