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Stock Return Co-movement and Systemic Risk in the Turkish Banking System

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  • Mahir Binici
  • Bulent Koksal
  • Cuneyt Orman

Abstract

This paper investigates the evolution of systemic risk in the Turkish banking sector over the past two decades using co-movement of banks’ stock returns as a systemic risk indicator. In addition, we explore possible determinants of systemic risk, the knowledge of which can be a useful input into effective macroprudential policymaking. Results show that the correlations between bank stock returns almost doubled in 2000s in comparison to 1990s. The correlations decreased somewhat after 2002 and increased again after the 2007-2009 financial crisis. Main determinants of systemic risk appear to be the market share of bank pairs, the amount of nonperforming loans, herding behavior of banks, and volatilities of macro variables including the exchange rate, US T-bills, EMBI+, VIX, and MSCI emerging markets index.

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Bibliographic Info

Article provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its journal Central Bank Review.

Volume (Year): 13 (2013)
Issue (Month): Special Issue on Systemic Risk ()
Pages: 41-63

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Handle: RePEc:tcb:cebare:v:13:y:2013:i:specialissue:p:41-63

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Keywords: Stock returns; Co-movement; Systemic risk; Turkish Banking System;

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  1. Acharya, Viral V., 2009. "A theory of systemic risk and design of prudential bank regulation," Journal of Financial Stability, Elsevier, vol. 5(3), pages 224-255, September.
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