Quotation Frey, Rüdiger, Hledik, Juraj. 2018. Diversification and Systemic Risk: A Financial Network Perspective. Risks. 6 (2), 54




In this paper, we study the implications of diversification in the asset portfolios of banks for financial stability and systemic risk. Adding to the existing literature, we analyse this issue in a network model of the interbank market. We carry out a simulation study that determines the probability of a systemic crisis in the banking network as a function of both the level of diversification, and the connectivity and structure of the financial network. In contrast to earlier studies we find that diversification at the level of individual banks may be beneficial for financial stability even if it does lead to a higher asset return correlation across banks. Keywords: systemic risk; financial network; diversification JEL Classification: G21; G28


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Risks
Language English
Title Diversification and Systemic Risk: A Financial Network Perspective
Volume 6
Number 2
Year 2018
Page from 54
Reviewed? Y
DOI http://dx.doi.org/10.3390/risks6020054
Open Access Y
Open Access Link http://www.mdpi.com/2227-9091/6/2/54/htm


Stochastic Filtering and Corporate and Sovereign Credit Risk
Frey, Rüdiger (Details)
Hledik, Juraj (Former researcher)
Institute for Statistics and Mathematics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
1118 Probability theory (Details)
1137 Financial mathematics (Details)
5361 Financial management (Details)
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