Towards a Generalized Measure of Systemic Risk: Systemic Turbulence Measure

Systemic risk, a concept closely related to financial system stability, has three major areas of concern: systemic liquidity, systemic fragility and risk spill-over (contagion). In the recent years there were many measures of systemic risk proposed in the literature, however, as can be shown after literature investigation and proven from their theoretical properties, none of these measures truly reflects all three mentioned characteristics of systemic risk. The paper provides a comparative analysis of these characteristics based on empirical data for Poland spanning from the year 2006 to 2016, encompassing the global financial crisis and the European sovereign debt crisis, and proposes a method of combining them into one aggregated measurement, using the concept of Mahalanobis distance, following the concept of financial turbulence measure proposed by Kritzman and Li (Financ Anal J 66:30-41, 2010). The aggregation procedure leads to postulation of a new systemic risk measurement method, called by the authors Systemic Turbulence Measure (STM).