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The study presented in this seminar modifies the Systemic Risk Index (SRISK) by Brownlees and Engle (2017) to measure potential capital shortfall of natural resource companies and how it is affected by the fluctuation of the commodity price cycle and business cycles, and whether macroeconomic uncertainties can explain firms failure probability. As an addition to standard market beta, this study also employs commodity beta to calculate potential capital shortfall.
Thus, there are two SRISKs calculated in this study. The first is the standard Market SRISK (MSRISK), and the second is the Commodity SRISK (CSRISK). The results found by the authors suggest that CSRISK can capture the capital shortfall of the sample with a similar pattern as MSRISK, but with an average 15 per cent higher level of capital shortfall. This finding strongly indicates that MSRISK might underestimate potential capital shortfall, especially for sectors that are more sensitive to commodity price instead of stock market indices. Furthermore, the results from the Panel Vector Autoregressive (PVAR) suggest procyclical responses of capital shortfall toward shocks of global business cycles and uncertainties. The last analysis suggests that macroeconomic uncertainties positively increase firms’ failure probability. Meanwhile, business cycles have mixed and sector-specific results.
Denny Irawan is a PhD candidate in Economics at the Centre for Applied Macroeconomic Analysis (CAMA) in Crawford School of Public Policy, The Australian National University (ANU). His research focuses on the impact of macroeconomic and commodity price uncertainties to financial dynamics of natural resource companies around the world; and how natural resource companies’ activities affect the environment. He has published at the Journal of Economic Dynamics and Control (JEDC) and Geoderma. Prior to his PhD, he had six years of professional economic research and consulting experience, and has engaged in more than 40 research and consulting projects.