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Bank Volatility Connectedness in South East Asia

Author

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  • Kamil Yilmaz

    () (Koc University)

Abstract

This paper presents an analysis of the volatility connectedness of major bank stocks in the South East Asia (SEACEN) region between 2004 and 2016. Applying the Diebold-Yilmaz Connectedness Index (DYCI) framework to daily stock return volatilities of major banks in the region, we obtain results that help us uncover valuable information on the region's static and dynamic bank volatility network. The volatility connectedness increased substantially during the US financial crisis (from 2007 to 2009) and during the European sovereign debt and banking crisis in 2011. The recent increase in the total connectedness has resulted from temporary financial shocks on a global scale. Once included in the analysis, the global systemically important banks (GSIBs) from the U.S. and Europe generate substantial volatility connectedness to SEACEN banks. We also identify country clusters in the banking volatility network. Major Indian, Taiwanese and Chinese banks generate volatility connectedness to their counterparts in other countries of the region. Finally, we show that the region's bank volatility network becomes tighter during systemic events; banks from different countries in the region generate volatility connectedness to the others.

Suggested Citation

  • Kamil Yilmaz, 2018. "Bank Volatility Connectedness in South East Asia," Koç University-TUSIAD Economic Research Forum Working Papers 1807, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:1807
    as

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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_1807.pdf
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    References listed on IDEAS

    as
    1. Garman, Mark B & Klass, Michael J, 1980. "On the Estimation of Security Price Volatilities from Historical Data," The Journal of Business, University of Chicago Press, vol. 53(1), pages 67-78, January.
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    4. Viral V. Acharya & Lasse H. Pedersen & Thomas Philippon & Matthew Richardson, 2017. "Measuring Systemic Risk," Review of Financial Studies, Society for Financial Studies, vol. 30(1), pages 2-47.
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    More about this item

    Keywords

    Systemic risk; Connectedness; Network; Global Systemically Important Banks; Vector Autoregression; Variance Decomposition; South East Asia.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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