The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight

The integration of micro-prudential oversight with the macro-approach to financial stability -- long in the making -- raises several issues of coordination of regulatory responsibilities. This paper argues that a decomposition of the covariance of...

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Main Author:	Majnoni, Giovanni
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCOUNTING AGGREGATE STOCK AGGREGATE WEALTH ARBITRAGE ASSET PRICE ASSET PRICES ASSET PRICING ASSET RETURN ASSET RETURNS BALANCE SHEET BANK ACTIVITIES BANK OFFICE BANKING CRISES BANKING REGULATION BENCHMARK BOND YIELD BUSINESS CYCLE CAPITAL ACCORD CAPITAL ASSETS CAPITAL CONTROLS CENTRAL BANK COLLATERAL CORPORATE BOND CREDIBILITY DEBT DEFLATION DEPOSIT DEPOSIT INSURANCE DIVERSIFICATION DIVERSIFICATION BENEFITS DIVIDENDS ECONOMIC DECISIONS ECONOMIC THEORY ECONOMICS EFFICIENT MARKET EFFICIENT MARKETS EQUILIBRIUM PRICE EQUILIBRIUM PRICES EQUILIBRIUM THEORY EQUITY MARKETS EQUITY PORTFOLIOS EXCESS DEMAND EXCESS RETURN EXPOSURE EXTERNALITIES FACTOR LOADINGS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSET FINANCIAL ASSETS FINANCIAL CONGLOMERATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FACTORS FINANCIAL HEALTH FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL RETURNS FINANCIAL RISK FINANCIAL SAFETY NET FINANCIAL SECTOR FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL VOLATILITY GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GLOBALIZATION IDIOSYNCRATIC RISK IMPERFECT INFORMATION INCOMPLETE MARKETS INDIVIDUAL ASSET INDIVIDUAL ASSETS INDIVIDUAL STOCKS INSTITUTIONAL INVESTORS INTERNATIONAL BANK INTERNATIONAL EQUITY INVESTMENT DECISION INVESTMENT POLICIES INVESTOR PREFERENCES LENDER LENDER OF LAST RESORT LIQUIDITY CONSTRAINTS LOAN MACROECONOMIC POLICY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MARKET ASSETS MARKET BEHAVIOR MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET INCENTIVES MARKET INTEGRITY MARKET LIQUIDITY MARKET PLAYERS MARKET POWER MARKET RETURN MARKET SHARES MARKET STRUCTURE MARKET VOLATILITY MORAL HAZARD MULTIPLE EQUILIBRIA MUTUAL FUND OUTPUT OVERSIGHT PROCESS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATIONS PORTFOLIOS PREVIOUS STUDIES PRICE EFFECT PRICING MODEL PRODUCTIVITY PRUDENTIAL SUPERVISION PUBLIC INVESTMENT REGULATORS REGULATORY BODIES REGULATORY PRACTICES RESERVE BANK RESERVES RETURN RETURN VARIANCE RISK AVERSION RISK CONTROL RISK FACTOR RISK FACTORS RISK MANAGEMENT RISK PARAMETERS RISK PREMIUMS RISK PROFILE SAFETY SAFETY NET SALES SELF-REGULATION SMALL SAVERS SOLVENCY STOCK MARKET STOCK MARKET CRASH STOCK MARKET INDEXES STOCK MARKET RETURNS STOCK MARKET VOLATILITY STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS SUPERVISORY AUTHORITIES SURPLUS SYSTEMIC RISK TRADING VOLATILITIES VOLATILITY WORLD ECONOMY
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101025091222 http://hdl.handle.net/10986/3939

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spelling	okr-10986-39392021-04-23T14:02:13Z The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight Majnoni, Giovanni ACCOUNTING AGGREGATE STOCK AGGREGATE WEALTH ARBITRAGE ASSET PRICE ASSET PRICES ASSET PRICING ASSET RETURN ASSET RETURNS BALANCE SHEET BANK ACTIVITIES BANK OFFICE BANKING CRISES BANKING REGULATION BENCHMARK BOND YIELD BUSINESS CYCLE CAPITAL ACCORD CAPITAL ASSETS CAPITAL CONTROLS CENTRAL BANK COLLATERAL CORPORATE BOND CREDIBILITY DEBT DEFLATION DEPOSIT DEPOSIT INSURANCE DIVERSIFICATION DIVERSIFICATION BENEFITS DIVIDENDS ECONOMIC DECISIONS ECONOMIC THEORY ECONOMICS EFFICIENT MARKET EFFICIENT MARKETS EQUILIBRIUM PRICE EQUILIBRIUM PRICES EQUILIBRIUM THEORY EQUITY MARKETS EQUITY PORTFOLIOS EXCESS DEMAND EXCESS RETURN EXPOSURE EXTERNALITIES FACTOR LOADINGS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSET FINANCIAL ASSETS FINANCIAL CONGLOMERATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FACTORS FINANCIAL HEALTH FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL RETURNS FINANCIAL RISK FINANCIAL SAFETY NET FINANCIAL SECTOR FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL VOLATILITY GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GLOBALIZATION IDIOSYNCRATIC RISK IMPERFECT INFORMATION INCOMPLETE MARKETS INDIVIDUAL ASSET INDIVIDUAL ASSETS INDIVIDUAL STOCKS INSTITUTIONAL INVESTORS INTERNATIONAL BANK INTERNATIONAL EQUITY INVESTMENT DECISION INVESTMENT POLICIES INVESTOR PREFERENCES LENDER LENDER OF LAST RESORT LIQUIDITY CONSTRAINTS LOAN MACROECONOMIC POLICY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MARKET ASSETS MARKET BEHAVIOR MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET INCENTIVES MARKET INTEGRITY MARKET LIQUIDITY MARKET PLAYERS MARKET POWER MARKET RETURN MARKET SHARES MARKET STRUCTURE MARKET VOLATILITY MORAL HAZARD MULTIPLE EQUILIBRIA MUTUAL FUND OUTPUT OVERSIGHT PROCESS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATIONS PORTFOLIOS PREVIOUS STUDIES PRICE EFFECT PRICING MODEL PRODUCTIVITY PRUDENTIAL SUPERVISION PUBLIC INVESTMENT REGULATORS REGULATORY BODIES REGULATORY PRACTICES RESERVE BANK RESERVES RETURN RETURN VARIANCE RISK AVERSION RISK CONTROL RISK FACTOR RISK FACTORS RISK MANAGEMENT RISK PARAMETERS RISK PREMIUMS RISK PROFILE SAFETY SAFETY NET SALES SELF-REGULATION SMALL SAVERS SOLVENCY STOCK MARKET STOCK MARKET CRASH STOCK MARKET INDEXES STOCK MARKET RETURNS STOCK MARKET VOLATILITY STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS SUPERVISORY AUTHORITIES SURPLUS SYSTEMIC RISK TRADING VOLATILITIES VOLATILITY WORLD ECONOMY The integration of micro-prudential oversight with the macro-approach to financial stability -- long in the making -- raises several issues of coordination of regulatory responsibilities. This paper argues that a decomposition of the covariance of asset returns into an endogenous volatility component -- which can be reduced -- and an exogenous volatility component -- which we have to live with -- helps address these coordination issues and provides the basis for financial health diagnostics and supervisory responses to observed symptoms of financial instability. By linking risk origination and risk control, the paper may also contribute to the search for an operational definition of the term "macro-prudential." 2012-03-19T18:42:32Z 2012-03-19T18:42:32Z 2010-10-01 http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101025091222 http://hdl.handle.net/10986/3939 English Policy Research working paper ; no. WPS 5456 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank Publications & Research :: Policy Research Working Paper The World Region The World Region
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACCOUNTING AGGREGATE STOCK AGGREGATE WEALTH ARBITRAGE ASSET PRICE ASSET PRICES ASSET PRICING ASSET RETURN ASSET RETURNS BALANCE SHEET BANK ACTIVITIES BANK OFFICE BANKING CRISES BANKING REGULATION BENCHMARK BOND YIELD BUSINESS CYCLE CAPITAL ACCORD CAPITAL ASSETS CAPITAL CONTROLS CENTRAL BANK COLLATERAL CORPORATE BOND CREDIBILITY DEBT DEFLATION DEPOSIT DEPOSIT INSURANCE DIVERSIFICATION DIVERSIFICATION BENEFITS DIVIDENDS ECONOMIC DECISIONS ECONOMIC THEORY ECONOMICS EFFICIENT MARKET EFFICIENT MARKETS EQUILIBRIUM PRICE EQUILIBRIUM PRICES EQUILIBRIUM THEORY EQUITY MARKETS EQUITY PORTFOLIOS EXCESS DEMAND EXCESS RETURN EXPOSURE EXTERNALITIES FACTOR LOADINGS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSET FINANCIAL ASSETS FINANCIAL CONGLOMERATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FACTORS FINANCIAL HEALTH FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL RETURNS FINANCIAL RISK FINANCIAL SAFETY NET FINANCIAL SECTOR FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL VOLATILITY GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GLOBALIZATION IDIOSYNCRATIC RISK IMPERFECT INFORMATION INCOMPLETE MARKETS INDIVIDUAL ASSET INDIVIDUAL ASSETS INDIVIDUAL STOCKS INSTITUTIONAL INVESTORS INTERNATIONAL BANK INTERNATIONAL EQUITY INVESTMENT DECISION INVESTMENT POLICIES INVESTOR PREFERENCES LENDER LENDER OF LAST RESORT LIQUIDITY CONSTRAINTS LOAN MACROECONOMIC POLICY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MARKET ASSETS MARKET BEHAVIOR MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET INCENTIVES MARKET INTEGRITY MARKET LIQUIDITY MARKET PLAYERS MARKET POWER MARKET RETURN MARKET SHARES MARKET STRUCTURE MARKET VOLATILITY MORAL HAZARD MULTIPLE EQUILIBRIA MUTUAL FUND OUTPUT OVERSIGHT PROCESS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATIONS PORTFOLIOS PREVIOUS STUDIES PRICE EFFECT PRICING MODEL PRODUCTIVITY PRUDENTIAL SUPERVISION PUBLIC INVESTMENT REGULATORS REGULATORY BODIES REGULATORY PRACTICES RESERVE BANK RESERVES RETURN RETURN VARIANCE RISK AVERSION RISK CONTROL RISK FACTOR RISK FACTORS RISK MANAGEMENT RISK PARAMETERS RISK PREMIUMS RISK PROFILE SAFETY SAFETY NET SALES SELF-REGULATION SMALL SAVERS SOLVENCY STOCK MARKET STOCK MARKET CRASH STOCK MARKET INDEXES STOCK MARKET RETURNS STOCK MARKET VOLATILITY STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS SUPERVISORY AUTHORITIES SURPLUS SYSTEMIC RISK TRADING VOLATILITIES VOLATILITY WORLD ECONOMY
spellingShingle	ACCOUNTING AGGREGATE STOCK AGGREGATE WEALTH ARBITRAGE ASSET PRICE ASSET PRICES ASSET PRICING ASSET RETURN ASSET RETURNS BALANCE SHEET BANK ACTIVITIES BANK OFFICE BANKING CRISES BANKING REGULATION BENCHMARK BOND YIELD BUSINESS CYCLE CAPITAL ACCORD CAPITAL ASSETS CAPITAL CONTROLS CENTRAL BANK COLLATERAL CORPORATE BOND CREDIBILITY DEBT DEFLATION DEPOSIT DEPOSIT INSURANCE DIVERSIFICATION DIVERSIFICATION BENEFITS DIVIDENDS ECONOMIC DECISIONS ECONOMIC THEORY ECONOMICS EFFICIENT MARKET EFFICIENT MARKETS EQUILIBRIUM PRICE EQUILIBRIUM PRICES EQUILIBRIUM THEORY EQUITY MARKETS EQUITY PORTFOLIOS EXCESS DEMAND EXCESS RETURN EXPOSURE EXTERNALITIES FACTOR LOADINGS FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ASSET FINANCIAL ASSETS FINANCIAL CONGLOMERATES FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DISTRESS FINANCIAL FACTORS FINANCIAL HEALTH FINANCIAL INSTABILITY FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL RETURNS FINANCIAL RISK FINANCIAL SAFETY NET FINANCIAL SECTOR FINANCIAL STABILITY FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL VOLATILITY GENERAL EQUILIBRIUM GENERAL EQUILIBRIUM MODELS GLOBALIZATION IDIOSYNCRATIC RISK IMPERFECT INFORMATION INCOMPLETE MARKETS INDIVIDUAL ASSET INDIVIDUAL ASSETS INDIVIDUAL STOCKS INSTITUTIONAL INVESTORS INTERNATIONAL BANK INTERNATIONAL EQUITY INVESTMENT DECISION INVESTMENT POLICIES INVESTOR PREFERENCES LENDER LENDER OF LAST RESORT LIQUIDITY CONSTRAINTS LOAN MACROECONOMIC POLICY MACROECONOMIC VARIABLES MACROECONOMIC VOLATILITY MARKET ASSETS MARKET BEHAVIOR MARKET CONCENTRATION MARKET CONDITIONS MARKET DISCIPLINE MARKET EFFICIENCY MARKET EQUILIBRIUM MARKET INCENTIVES MARKET INTEGRITY MARKET LIQUIDITY MARKET PLAYERS MARKET POWER MARKET RETURN MARKET SHARES MARKET STRUCTURE MARKET VOLATILITY MORAL HAZARD MULTIPLE EQUILIBRIA MUTUAL FUND OUTPUT OVERSIGHT PROCESS POLICY RESPONSE POLICY RESPONSES POLITICAL ECONOMY PORTFOLIO PORTFOLIO ALLOCATIONS PORTFOLIOS PREVIOUS STUDIES PRICE EFFECT PRICING MODEL PRODUCTIVITY PRUDENTIAL SUPERVISION PUBLIC INVESTMENT REGULATORS REGULATORY BODIES REGULATORY PRACTICES RESERVE BANK RESERVES RETURN RETURN VARIANCE RISK AVERSION RISK CONTROL RISK FACTOR RISK FACTORS RISK MANAGEMENT RISK PARAMETERS RISK PREMIUMS RISK PROFILE SAFETY SAFETY NET SALES SELF-REGULATION SMALL SAVERS SOLVENCY STOCK MARKET STOCK MARKET CRASH STOCK MARKET INDEXES STOCK MARKET RETURNS STOCK MARKET VOLATILITY STOCK PRICE STOCK PRICES STOCK RETURNS STOCKS SUPERVISORY AUTHORITIES SURPLUS SYSTEMIC RISK TRADING VOLATILITIES VOLATILITY WORLD ECONOMY Majnoni, Giovanni The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight
geographic_facet	The World Region The World Region
relation	Policy Research working paper ; no. WPS 5456
description	The integration of micro-prudential oversight with the macro-approach to financial stability -- long in the making -- raises several issues of coordination of regulatory responsibilities. This paper argues that a decomposition of the covariance of asset returns into an endogenous volatility component -- which can be reduced -- and an exogenous volatility component -- which we have to live with -- helps address these coordination issues and provides the basis for financial health diagnostics and supervisory responses to observed symptoms of financial instability. By linking risk origination and risk control, the paper may also contribute to the search for an operational definition of the term "macro-prudential."
format	Publications & Research :: Policy Research Working Paper
author	Majnoni, Giovanni
author_facet	Majnoni, Giovanni
author_sort	Majnoni, Giovanni
title	The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight
title_short	The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight
title_full	The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight
title_fullStr	The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight
title_full_unstemmed	The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight
title_sort	co-movement of asset returns and the micro-macro focus of prudential oversight
publishDate	2012
url	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20101025091222 http://hdl.handle.net/10986/3939
_version_	1764389118697013248

The Co-movement of Asset Returns and the Micro-Macro Focus of Prudential Oversight

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