From the CAPM with systemic risk to the determination of Systemically Important Financial Institutions.

Summary In this paper, we propose to test an extension of the CAPM, in which we add a systemic risk factor, measured by an aggregation of the main systemic risk measures, as recently proposed by different authors, in the framework of a Parsimonious Principal Component Analysis (PPCA). Our empirical analysis on the US market shows that systemic risk is indeed an important component of the compensation on some securities. We finally propose an original application to identify and classify Systemically Important Financial Institutions (SIFIs).