Time-vaeying tail risk in the financial sector

Abstract

This paper investigates the usefulness of time-varying tail risk in the financial sector. The findings of this paper support the notion that financial sector time-varying tail risk possesses predictive power over future market returns over a horizon of one-month, one-year, three-years and five-years and some predictive power over future financial crises. Within the financial sector there are four industries recognized; the banking, insurance, broker dealer and other industry. These industries all have a different level of systemic risk and thus pose different risks to the financial sector and in term to the real economy.