Hidden Bibliographic Details
| Other authors / contributors: | International Monetary Fund. Western Hemisphere Department, issuing body.
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| ISBN: | 1455224014
9781455224012
1283566273
9781283566278
9781462358632
1462358632
9781455226061
1455226068
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| Notes: | Includes bibliographical references.
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| Summary: | The correlation bias refers to the fact that claim subordination in the capital structure of the firm influences claim holders preferred degree of asset correlation in portfolios held by the firm. Using the copula capital structure model, it is shown that the correlation bias shifts shareholder preferences towards highly correlated assets, making financial institutions more prone to fail and increasing systemic risk given interconnectedness in the financial system. The implications for systemic risk and prudential regulation are assessed under the prism of Basel III, and potential solutions involving changes to the prudential framework and corporate governance are suggested.
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| Other form: | Print version: Fund, International Monetary. Fat Tails and their (Un)happy Endings: Correlation Bias and its Implications for Systemic Risk and Prudential Regulation. Washington : International Monetary Fund, ©2011 9781455226061
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