Question: Just to be sure, the risk manager runs a regression of the Japanese stocks on U.S. stocks and finds a slope coefficient of 0.9. Assuming

Just to be sure, the risk manager runs a regression of the Japanese stocks on U.S. stocks and finds a slope coefficient of 0.9. Assuming that a shock of 20 percent originates from the United States, compute the predicted stress loss for the portfolio. What is the danger of this approach?

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