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Does Risk Management Make Financial Markets Riskier?

In: Risk Management

Author

Listed:
  • Ian R. Harper

    (Melbourne Business School)

  • Joachim G. Keller

    (University of Saarland)

  • Christian M. Pfeil

    (University of Leipzig)

Abstract

Value-at-risk figures are calculated on the basis of historical market volatility and capital requirements are determined on the basis of these calculations. A rise in historical market volatility leads to an increase of the regulatory capital requirement. If market participants engage in forced selling to decrease risk exposure to meet imposed capital requirements, volatility may be amplified. Risk management on the individual firm level may thus actually lead to an increase of market volatility in the economy as a whole and the regulatory aim to limit the chances of systemic effects is undermined. We present an informal exposition of this argument as well as supporting empirical and anecdotal evidence.

Suggested Citation

  • Ian R. Harper & Joachim G. Keller & Christian M. Pfeil, 2005. "Does Risk Management Make Financial Markets Riskier?," Springer Books, in: Michael Frenkel & Markus Rudolf & Ulrich Hommel (ed.), Risk Management, edition 0, pages 765-783, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-26993-9_39
    DOI: 10.1007/3-540-26993-2_39
    as

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    Cited by:

    1. Makera M Aziz, 2016. "Iraqi Currency Recognition System Using RGB and HSV Color Average," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 2(1), pages 9-15.
    2. Intan W. Sakti, 2016. "The Analysis Factors of Experential Marketing, Product Quality, and Customer Satisfaction of Motor Bike as a Main Transportation Mode in Bandung-Indonesia," International Journal of Business and Administrative Studies, Professor Dr. Bahaudin G. Mujtaba, vol. 2(1), pages 6-8.
    3. Shwu-Ing Wu & Man-Li Tian, 2017. "Impact of Consumers’ Preference for Cultural and Creative Parks on the Attitude Behavior Model," International Journal of Business and Management, Canadian Center of Science and Education, vol. 12(8), pages 201-201, July.

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