Three Essays on Financial Stability

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Title: Three Essays on Financial Stability
Authors: Abendschein, Michael
Thesis advisor: Prof. Dr. Peter Grundke
Thesis referee: Prof. Dr. Valeriya Dinger
Abstract: This dissertation explores aspects of financial stability from three different perspectives. In the first essay, we empirically analyze to which extent popular global systemic risk measures (SRMs) yield comparable results with respect to the systemic importance of a financial institution and, in particular, from which determinants the degree of consistency of the classification by the various SRMs depends. It turns out that rank correlations, in general, are more sensitive towards macroeconomic factors such as the unemployment rate, and to a minor degree towards factors that can be interpreted in a broader sense as proxies for the stability of a bank such as the market-to-book ratio and the loans-to-deposits ratio. Further analyses reveal the inconsistency of systemic risk ranks and the difficulty to detect specific explanatory factors across several different settings. In the second essay, we assess the potential of activity on Twitter for improving forecasts of daily and intra-daily stock and index return volatilities. For this purpose, a unique high-frequency dataset of a comprehensive sample of more than 150 stocks of large international companies, systemically important banks, as well as several leading international stock indices is constructed. Our results show that there is no clear advantage of adding Twitter information by assessing the forecast performance of a plethora of different model specifications. We also reveal the necessity to consider different set-ups since they partly deliver opposing results. However, even though Twitter information is sometimes valuable, we find that forecast improvements in general remain marginal. In the third essay, we characterizes the formation of self-enforcing international financial regulation agreements. Our analysis allows evaluating the desirability and feasibility of cooperative solutions and explains the challenges associated with the process of cooperation. We model the cooperation of national financial regulators in a game-theoretical framework that considers financial stability to be an impure public good. Joint national supervisory effort is supposed to increase aggregate welfare in terms of a more stable financial system both on a global and on a local level by simultaneously generating incentives to free-ride. In our basic version of the model, we show that partial cooperation of two or three countries is stable and improves the welfare of all countries relative to the non-cooperative Nash equilibrium. Further analyses highlight the role of additional club benefits. When signatory countries of a coalition gain benefits over and above the joint welfare maximization, stable coalitions of any size become feasible.
Subject Keywords: Financial Stability; Financial Regulation; Systemic Risk; Volatility Forecasting; Twitter; International Policy Cooperation; Impure Public Good
Issue Date: 14-May-2021
License name: Attribution 3.0 Germany
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Type of publication: Dissertation oder Habilitation [doctoralThesis]
Appears in Collections:FB09 - E-Dissertationen

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