Abstract

In recent years, mergers, acquisitions and organic growth have meant that some of the largest and most complex financial groups have come to transcend national boundaries and traditionally defined business lines. As a result, they have become a potential channel for the cross-border and crossmarket transmission of financial shocks. This paper analyses the degree of comovement in the prices of securities issued by a selected group of large complex financial institutions (LCFIs), and assesses the extent to which movements in the prices of these securities are driven by common factors. A relatively high degree of commonality is found for most LCFIs (compared to a control group of nonfinancials), although there are still noticeable divisions between sub-groups of LCFIs, both according to geography and primary business-line. This working paper is an extension of the December 2003 Financial Stability Review article “Large complex financial institutions: common influences on asset price behaviour? ” The main changes are the inclusion of a section on principal component analysis, an extension of the econometric estimation of the factor models, and a more detailed description of the papers ’ results. Christian Hawkesby and Ibrahim Stevens are at the Bank of England. Ian W. Marsh is at Cass Business School and

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