NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Mohammad Pesaran

University of Southern California

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NBER Working Papers and Publications

January 2007Global Business Cycles and Credit Risk
with Til Schuermann, Bjorn-Jakob Treutler
in The Risks of Financial Institutions, Mark Carey and René M. Stulz, editors
July 2005Global Business Cycles and Credit Risk
with Til Schuermann, Björn-Jakob Treutler: w11493
The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive macroeconomic model accounting for about 80% of world output, we propose a model for exploring credit risk diversification across industry sectors and across different countries or regions. We find that full firm-level parameter heterogeneity along with credit rating information matters a great deal for capturing differences in simulated credit loss distributions. These differences become more pronounced in the presence of systematic risk factor shocks: increased parameter heterogeneity reduces shock se...

Published: Global Business Cycles and Credit Risk, M. Hashem Pesaran, Til Schuermann, Bjorn-Jakob Treutler. in The Risks of Financial Institutions, Carey and Stulz. 2006

 
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