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Stock return comovement and systemic risk in the Turkish banking system

  • Binici, Mahir
  • Köksal, Bülent
  • Orman, Cüneyt

This paper investigates the evolution of systemic risk in the Turkish banking sector over the past two decades using comovement 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 as a result of the 2007-2009 financial crisis. Main determinants of systemic risk appear to be the market share of bank pairs, the amount of non-performing loans, herding behavior of banks, and volatilities of macro variables including the exchange rate, U.S. T-bills, EMBI+, VIX, and MSCI emerging markets index.

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File URL: http://mpra.ub.uni-muenchen.de/38663/1/MPRA_paper_38663.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 38663.

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Date of creation: 01 May 2012
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Handle: RePEc:pra:mprapa:38663
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  1. Malcolm Baker & Jeffrey Wurgler, 2004. "Investor Sentiment and the Cross-Section of Stock Returns," NBER Working Papers 10449, National Bureau of Economic Research, Inc.
  2. Hawkesby, Christian & Marsh, Ian W. & Stevens, Ibrahim, 2007. "Comovements in the equity prices of large complex financial institutions," Journal of Financial Stability, Elsevier, vol. 2(4), pages 391-411, March.
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  5. 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.
  6. Monica Billio & Mila Getmansky & Andrew W. Lo & Loriana Pelizzon, 2010. "Econometric Measures of Systemic Risk in the Finance and Insurance Sectors," NBER Chapters, in: Market Institutions and Financial Market Risk National Bureau of Economic Research, Inc.
  7. Michel Beine & Antonio Cosma & Robert Vermeulen, 2008. "The Dark Side of Global Integration: Increasing Tail Dependence," CREA Discussion Paper Series 08-03, Center for Research in Economic Analysis, University of Luxembourg.
  8. Rochet, Jean-Charles & Tirole, Jean, 1996. "Interbank Lending and Systemic Risk," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 733-62, November.
  9. Malkiel, Burton & Campbell, John & Lettau, Martin & Xu, Yexiao, 2001. "Have Individual Stocks Become More Volatile? An Empirical Exploration of Idiosyncratic Risk," Scholarly Articles 3128707, Harvard University Department of Economics.
  10. Oscar Jorda & Moritz Schularick & Alan Taylor, 2012. "When Credit Bites Back: Leverage, Business Cycles and Crises," Working Papers 1224, University of California, Davis, Department of Economics.
  11. Wälti, Sébastien, 2011. "Stock market synchronization and monetary integration," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 96-110, February.
  12. G. Andrew Karolyi & Rene M. Stulz, 2002. "Are Financial Assets Priced Locally or Globally?," NBER Working Papers 8994, National Bureau of Economic Research, Inc.
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  14. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-50, July.
  15. Longin, Francois & Solnik, Bruno, 1995. "Is the correlation in international equity returns constant: 1960-1990?," Journal of International Money and Finance, Elsevier, vol. 14(1), pages 3-26, February.
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