Principal Investigator Andrew Lo
Co-investigators Deborah Lucas , Robert Merton
The adage that “one cannot manage what one does not measure” motivates the need for quantitative metrics of systemic risk in the financial system. However, there is no consensus yet on a single definition of systemic risk, hence multiple measures have been proposed in the recent finance and macroeconomics literatures. In this project, we hope to develop intuition for the strengths and weaknesses of these measures by comparing their empirical properties using historical data and judging their performance along several dimensions including their ability to forecast crises, the number of false positives they generate, and their incremental value above and beyond traditional measures of aggregate risk. In addition, we are constructing web-based “Systemic-Risk Dashboard” that provides a platform for visual displays of these measures as well as automatic daily updates and other interactive features.