Principal Components as a Measure of Systemic Risk
By Mark Kritzman , State Street Associates
Jun 1, 2011
By Mark Kritzman, Yuanzhen Li, Sebastien Page, and Roberto Rigobon.
Published in the Journal of Portfolio Management, Summer 2011.
We introduce a method for inferring systemic risk from asset prices, and show how investors might use the absorption ratio as an early warning signal of market stress.