Principal Components as a Measure of Systemic Risk
By Mark Kritzman, State Street Associates
Apr 6, 2019
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.