Financial Econometrics and Empirical Market Microstructure

Industry Specifics of Global Risk Factor Exposure

The industry specifics of preconditions for error proliferation includes, among other things: (1) the scope of error impact on business processes (with a higher labor productivity, an error of one operator would affect more performance indicators and, generally, more business processes), (2) the scope of business process regulation (including operator qualification requirements and other industry-specific barriers), (3) relative attractiveness of the industry pay rate against the average pay in the region’s economy, and (4) the conflict intensity in the industry (the number of strikes).

Industry specifics result in different global risk factor exposures that should be taken into account by risk managers. For instance, diversified portfolios may be created using the correlation matrix or co-integrating vector approaches that take into account the global risk factor exposures of various assets and consider credit risks in accordance with the industry specifics. A detector of those risks that cannot be explained by the global risk factor behavior allows for planning most topical areas of risk audit for identification of operational risks.