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Financial market stability--A test

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  • Baur, Dirk G.
  • Schulze, Niels

Abstract

This paper proposes a definition for financial market stability and an econometric test. It analyzes the impact of systematic and systemic shocks on developed and emerging market stock indices in normal and extreme market conditions. Financial market stability is defined as a constant impact of systematic shocks in normal and extreme market situations. Empirical results show that the impact of systematic shocks is significantly larger in extreme market conditions than in normal conditions for emerging markets. In contrast, the relationship is stable for developed markets. Hence, only developed markets meet an essential condition for financial market stability.

Suggested Citation

  • Baur, Dirk G. & Schulze, Niels, 2009. "Financial market stability--A test," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(3), pages 506-519, July.
    • Handle: RePEc:eee:intfin:v:19:y:2009:i:3:p:506-519
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    References listed on IDEAS

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    6. Daniel Dimitrov & Sweder van Wijnbergen, 2022. "Quantifying Systemic Risk in the Presence of Unlisted Banks: Application to the Dutch Financial Sector," Tinbergen Institute Discussion Papers 22-034/VI, Tinbergen Institute.
    7. Dimitrov, Daniel & van Wijnbergen, Sweder, 2023. "Quantifying Systemic Risk in the Presence of Unlisted Banks: Application to the European Banking Sector," CEPR Discussion Papers 17992, C.E.P.R. Discussion Papers.
    8. Vithessonthi, Chaiporn, 2014. "The effect of financial market development on bank risk: evidence from Southeast Asian countries," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 249-260.
    9. Yang, Ann Shawing, 2020. "Misinformation corrections of corporate news: Corporate clarification announcements," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    10. Silva, Walmir & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2017. "An analysis of the literature on systemic financial risk: A survey," Journal of Financial Stability, Elsevier, vol. 28(C), pages 91-114.
    11. Ye, Wuyi & Li, Mingge & Wu, Yuehua, 2022. "A novel estimation of time-varying quantile correlation for financial contagion detection," The North American Journal of Economics and Finance, Elsevier, vol. 63(C).
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