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Contagion risk in the Australian banking and property sectors

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  • Pais, Amelia
  • Stork, Philip A.

Abstract

The Australian banking system emerged from the global crisis virtually unhurt, with most banks still profitable, adequately capitalized, and with AA credit ratings. Are there any risks or vulnerabilities in this success story? This paper analyzes Australia's systemic banking risk and attempts to determine if this risk increased with the recent global crisis and whether this risk is related to the downturn experienced in the real estate market. We use extreme value theory to measure banks' and property firms' univariate Value at Risk, as well as multivariate intra-sector and inter-sector contagion risks. Of the 13 sectors analyzed, we find that the property sector exhibits the highest level of extremal dependence with the banking sector. The credit crisis significantly increased the probability of a bank or property firm crashing. Moreover, contagion risks significantly increased not only within the banking and property sectors, but also between those sectors.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 35 (2011)
Issue (Month): 3 (March)
Pages: 681-697

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Handle: RePEc:eee:jbfina:v:35:y:2011:i:3:p:681-697

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Contagion risk Banks Extreme value theory Australia;

References

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Citations

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Cited by:
  1. Chang, Guang-Di & Chen, Chia-Shih, 2014. "Evidence of contagion in global REITs investment," International Review of Economics & Finance, Elsevier, vol. 31(C), pages 148-158.
  2. Yang, Hsin-Feng & Liu, Chih-Liang & Chou, Ray Yeutien, 2014. "Interest rate risk propagation: Evidence from the credit crunch," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 242-264.
  3. van Oordt, Maarten R.C. & Zhou, Chen, 2012. "The simple econometrics of tail dependence," Economics Letters, Elsevier, vol. 116(3), pages 371-373.
  4. Paolo Emilio Mistrulli, 2007. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Temi di discussione (Economic working papers) 641, Bank of Italy, Economic Research and International Relations Area.
  5. Hilal, Sawsan & Poon, Ser-Huang & Tawn, Jonathan, 2011. "Hedging the black swan: Conditional heteroskedasticity and tail dependence in S&P500 and VIX," Journal of Banking & Finance, Elsevier, vol. 35(9), pages 2374-2387, September.
  6. Leila Gharbi & Khamoussi Halioui, 2011. "La juste valeur des instruments financiers : Un nouveau canal de contagion ?," Post-Print hal-00650435, HAL.
  7. Fedorova, Elena, 2011. "Transfer of financial risk in emerging eastern European stock markets: A sectoral perspective," BOFIT Discussion Papers 24/2011, Bank of Finland, Institute for Economies in Transition.
  8. Eli Beracha & Hilla Skiba, 2013. "Findings from a Cross-Sectional Housing Risk-Factor Model," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 289-309, August.

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