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Stock Return Comovement and Systemic Risk in the Turkish Banking System

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Listed author(s):
  • 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 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 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, U.S. T-bills, EMBI+, VIX, and MSCI emerging markets index.

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File URL: http://www.tcmb.gov.tr/wps/wcm/connect/TCMB+EN/TCMB+EN/Main+Menu/PUBLICATIONS/Research/Working+Paperss/2013/13-02
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Paper provided by Research and Monetary Policy Department, Central Bank of the Republic of Turkey in its series Working Papers with number 1302.

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Date of creation: 2013
Handle: RePEc:tcb:wpaper:1302
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Keywords: Stock Returns; Comovement; Systemic Risk; Turkish Banking System;

Other versions of this item:

Find related papers by JEL classification:
  • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
  • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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  9. Karolyi, G. Andrew & Stulz, Rene M., 2003. "Are financial assets priced locally or globally?," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 16, pages 975-1020 Elsevier.
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  13. 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.
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  15. Wälti, Sébastien, 2011. "Stock market synchronization and monetary integration," Journal of International Money and Finance, Elsevier, vol. 30(1), pages 96-110, February.
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