Concentration indicators: Assessing the gap between aggregatre and detailed data

Risk analysis depends to a large extent on the type of data. Aggregate data can serve as a useful surrogate for individual data. However, in practice, there is uncertainty on the reliability and adequacy of aggregated data. In this paper we estimate the Herfindahl-Hirschman Index (HHI) for a loan portfolio using both aggregate data and individual data. Then, we compare both estimates to assess the reliability of the aggregated data. Concentration is a key driver of a portfolio credit risk and the HHI is a reliable standard for measuring concentration risk. Results for the Mexican banking system suggest that the estimated HHI based on aggregate data is a fairly good proxy for the actual concentration. This result suggests that aggregate data are useful to evaluate the underlying risk of the portfolio for regulatory purposes.