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Article
Publication date: 15 February 2024

Wenbo Ma, Kai Li, Wei-Fong Pan and Xinjie Wang

The purpose of this paper is to construct an index for systemic risk in China.

Abstract

Purpose

The purpose of this paper is to construct an index for systemic risk in China.

Design/methodology/approach

This paper develops a systemic risk index for China (SRIC) using textual information from 26 leading newspapers in China. Our index measures the systematic risk from 21 topics relating to China’s economy and provides narratives of the sources of systemic risk.

Findings

SRIC effectively predicts changes in GDP, aggregate financing to the real economy and the purchasing managers’ index. Moreover, SRIC explains several other commonly used macroeconomic indicators. Our risk measure provides a helpful monitoring tool for policymakers to manage systemic risk.

Originality/value

The paper construct an index of systemic risk based on the information extracted from newspaper articles. This approach is new to the literature.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 4 December 2023

Qing Liu, Yun Feng and Mengxia Xu

This paper aims to investigate whether the establishment of commodity futures can effectively hedge systemic risk in the spot network, given the context of financialization in the…

Abstract

Purpose

This paper aims to investigate whether the establishment of commodity futures can effectively hedge systemic risk in the spot network, given the context of financialization in the commodity futures market.

Design/methodology/approach

Utilizing industry association data from the Chinese commodity market, the authors identify systemically important commodities based on their importance in the production process using multiple graph analysis methods. Then the authors analyze the effect of listing futures on the systemic risk in the spot market with the staggered difference-in-differences (DID) method.

Findings

The findings suggest that futures contracts help reduce systemic risks in the underlying spot network. Systemic risk for a commodity will decrease by approximately 5.7% with the introduction of each corresponding futures contract, since the hedging function of futures reduces the timing behavior of firms in the spot market. Establishing futures contracts for upstream commodities lowers systemic risks for downstream commodities. Energy commodities, such as crude oil and coal, have higher systemic importance, with the energy sector dominating systemic importance, while some chemical commodities also have considerable systemic importance. Meanwhile, the shortest transmission path for risk propagation is composed of the energy industry, chemical industry, agriculture/metal industry and final products.

Originality/value

The paper provides the following policy insights: (1) The role of futures contracts is still positive, and future contracts should be established upstream and at more systemically important nodes in the spot production chain. (2) More attention should be paid to the chemical industry chain, as some chemical commodities are systemically important but do not have corresponding futures contracts. (3) The risk source of the commodity spot market network is the energy industry, and therefore, energy-related commodities should continue to be closely monitored.

Details

China Finance Review International, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 31 October 2023

Xin Liao and Wen Li

Considering the frequency of extreme events, enhancing the global financial system's stability has become crucial. This study aims to investigate the contagion effects of extreme…

Abstract

Purpose

Considering the frequency of extreme events, enhancing the global financial system's stability has become crucial. This study aims to investigate the contagion effects of extreme risk events in the international commodity market on China's financial industry. It highlights the significance of comprehending the origins, severity and potential impacts of extreme risks within China's financial market.

Design/methodology/approach

This study uses the tail-event driven network risk (TENET) model to construct a tail risk spillover network between China's financial market and the international commodity market. Combining with the characteristics of the network, this study employs an autoregressive distributed lag (ARDL) model to examine the factors influencing systemic risks in China's financial market and to explore the early identification of indicators for systemic risks in China's financial market.

Findings

The research reveals a strong tail risk contagion effect between China's financial market and the international commodity market, with a more pronounced impact from the latter to the former. Industrial raw materials, food, metals, oils, livestock and textiles notably influence China's currency market. The systemic risk in China's financial market is driven by systemic risks in the international commodity market and network centrality and can be accurately predicted with the ARDL-error correction model (ECM) model. Based on these, Chinese regulatory authorities can establish a monitoring and early warning mechanism to promptly identify contagion signs, issue timely warnings and adjust regulatory measures.

Originality/value

This study provides new insights into predicting systemic risk in China's financial market by revealing the tail risk spillover network structure between China's financial and international commodity markets.

Details

Kybernetes, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0368-492X

Keywords

Article
Publication date: 13 February 2023

Hasan Hanif

Systemic risk is of concern for economic welfare as it can lower the credit supply to all the sectors within an economy. This study examines for the first time the complete…

Abstract

Purpose

Systemic risk is of concern for economic welfare as it can lower the credit supply to all the sectors within an economy. This study examines for the first time the complete hierarchy of variables that drive systemic risk during normal and crisis periods in Pakistan, a developing economy.

Design/methodology/approach

Secondary data of the bank, sector and country variables are used for the purpose of the analysis spanning from 2000 to 2020. Systemic risk is computed using marginal expected shortfall (MES). One-step and two-step system GMM is performed to estimate the impact of firm, sector and country-level variables on systemic risk.

Findings

The findings of the study highlight that sector-level variables are also highly significant in explaining the systemic risk dynamics along with bank and country-level variables. In addition, economic sensitivity influences the significance level of variables across crisis and post-crisis periods and modifies the direction of relationships in some instances.

Research limitations/implications

The study examines the systemic risk of a developing economy, and findings may not be generalizable to developed economies.

Practical implications

The outcome of the study provides a comprehensive framework for the central bank and other regulatory authorities that can be translated into timely policies to avoid systemic financial crisis.

Social implications

The negative externalities generated by systemic risk also affect the general public. The study results can be used to avoid the systemic financial crisis and resultantly save the loss of the general public's hard-earned holdings.

Originality/value

The firm, sector and country-level variables are modeled for the first time to estimate systemic risk across different economic conditions in a developing economy, Pakistan. The study can also act as a reference for researchers in developed economies as well regarding the role of sector-level variables in explaining systemic risk.

Details

South Asian Journal of Business Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2398-628X

Keywords

Article
Publication date: 10 October 2023

Luena Collini and Pierre Hausemer

The aim of this paper is to understand how systemic change agents influence the twin digital and green transitions. The authors build on agency-based theories to argue that…

Abstract

Purpose

The aim of this paper is to understand how systemic change agents influence the twin digital and green transitions. The authors build on agency-based theories to argue that transition pathways are influenced by a combination of place-based characteristics, the mobilisation and preferences of systemic change agents (such as local clusters), and the institutional and economic context. The conceptual framework defines the different steps of the twin transition, and it identifies how systemic change agents and geographic characteristics determine the direction and speed of the transition pathway.

Design/methodology/approach

This paper starts with a literature review to identify the different schools of thoughts on transition pathways and the twin transition, before developing a conceptual framework and deriving policy implications.

Findings

First, this paper argues that each transition involves three steps: framing, piloting and scaling. Each of these steps is driven by systemic change agents who engage local actors in trust-based collaboration, pool resources, create network effects and exchange information to source solutions for industry-level challenges. Second, the combination of place-based characteristics and the actions of local systemic change agents define the path of the transition and the new (post-transition) equilibrium. Finally, this paper sets out implications for policymakers who are interested in using systemic change agents to shape transition pathways in their local area.

Research limitations/implications

Further research is needed to provide robust empirical evidence from a range of territorial realities for the hypotheses in this paper. Specifically, the role of systemic change agents, such as trade associations, regional organisations, clusters or research groupings, needs to be investigated more closely. These agents can play a key role in progressing the transition because they already focus on sourcing solutions to joint challenges and opportunities by exchanging information, engaging local actors in trust-based collaboration, pooling resources and fostering network effects and critical mass. Future research should investigate how policymakers can best leverage on these crucial actors to progress or steer transitions and how this varies depending on place-based characteristics. This could include, for instance, training activities, networking and collaboration (e.g. through the European Cluster Collaboration Platform) or clearer sign-posting the key next steps required for the transition.

Practical implications

This paper identifies specific ways in which local actors can influence the direction and speed of transitions at each stage of the transition: at the framing stage, political entrepreneurship can be fostered through collaboration and smooth information flows between different levels of governance, at the piloting stage, commercial and social entrepreneurship require effective knowledge sharing and a wide and open search for solutions which, in turn, may require capacity building at the local level and coordination across stakeholder groups and levels of governance and effective scaling up can be fostered through network effects, joint commitment from a broad range of stakeholders and pooling of resources to achieve economies of scale.

Social implications

An important implication of the framework is that, if several places are undergoing a parallel or joint transition, the result may not be convergence between these places. Instead, different places may choose different end points and they may proceed at different speeds. For instance, in the context of the European Union’s green and digital transitions, it is unlikely that every region will transition to a similar level of digitisation or make steps in the same direction when it comes to sustainability.

Originality/value

This paper plugs a gap in understanding how systemic transitions unfold and how their speed and direction are influenced by different stakeholder groups. This paper develops a conceptual framework to define twin transition pathways and it analyses prominent place-based factors affecting these pathways.

Details

Competitiveness Review: An International Business Journal , vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1059-5422

Keywords

Article
Publication date: 2 December 2022

Hui Hong, Shitong Wu and Chien-Chiang Lee

The purpose of the paper is to assess the systemic risk in the new energy stock markets of China.

Abstract

Purpose

The purpose of the paper is to assess the systemic risk in the new energy stock markets of China.

Design/methodology/approach

This paper first uses the VaR method to study individual stock market risks. It then introduces the DCC model to capture the dynamic conditional correlation among the new energy stock markets.

Findings

The paper shows a generally upward trend of the stock market risk over time in the recent decade. Among all the markets considered, the solar power market demonstrates the highest risk, closely followed by the wind power market, while the hydropower market exhibits the lowest risk. Furthermore, the average dynamic conditional correlations among the new energy markets stay high during the period under investigation though daily correlations vary and significantly declined in 2020.

Originality/value

To the best of the authors’ knowledge, this paper is the first of its kind to study the systemic risk within the new energy stock market context. In addition, it not only investigates individual new energy stock market risks but also examines the dynamic linkages among those markets, thus providing comprehensive and unprecedented evidence of systemic risk in China new energy markets, which have useful implications for both regulators and investors.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 23 February 2024

Anju Goswami and Pooja Malik

The novel coronavirus (COVID-19) has caused financial stress and limited their lending agility, resulting in more non-performing loans (NPLs) and lower performance during the II…

Abstract

Purpose

The novel coronavirus (COVID-19) has caused financial stress and limited their lending agility, resulting in more non-performing loans (NPLs) and lower performance during the II wave of the coronavirus crisis. Therefore, it is essential to identify the risky factors influencing the financial performance of Indian banks spanning 2018–2022.

Design/methodology/approach

Our sample consists of a balanced panel dataset of 75 scheduled commercial banks from three different ownership groups, including public, private and foreign banks, that were actively engaged in their operations during 2018–2022. Factor identification is performed via a fixed-effects model (FEM) that solves the issue of heterogeneity across different with banks over time. Additionally, to ensure the robustness of our findings, we also identify the risky drivers of the financial performance of Indian banks using an alternative measure, the pooled ordinary least squares (OLS) model.

Findings

Empirical evidence indicates that default risk, solvency risk and COVAR reduce financial performance in India. However, high liquidity, Z-score and the COVID-19 crisis enhance the financial performance of Indian banks. Unsystematic risk and systemic risk factors play an important role in determining the prognosis of COVID-19. The study supports the “bad-management,” “moral hazard” and “tail risk spillover of a single bank to the system” hypotheses. Public sector banks (PSBs) have considerable potential to achieve financial performance while controlling unsystematic risk and exogenous shocks relative to their peer group. Finally, robustness check estimates confirm the coefficients of the main model.

Practical implications

This study contributes to the knowledge in the banking literature by identifying risk factors that may affect financial performance during a crisis nexus and providing information about preventive measures. These insights are valuable to bankers, academics, managers and regulators for policy formulation. The findings of this paper provide important insights by considering all the risk factors that may be responsible for reducing the probability of financial performance in the banking system of an emerging market economy.

Originality/value

The empirical analysis has been done with a fresh perspective to consider unsystematic risk, systemic risk and exogenous risk (COVID-19) with the financial performance of Indian banks. Furthermore, none of the existing banking literature explicitly explores the drivers of the I and II waves of COVID-19 while considering COVID-19 as a dependent variable. Therefore, the aim of the present study is to make efforts in this direction.

Details

Benchmarking: An International Journal, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1463-5771

Keywords

Article
Publication date: 5 December 2023

Gatot Soepriyanto, Shinta Amalina Hazrati Havidz and Rangga Handika

This study provides a comprehensive analysis of the potential contagion of Bitcoin on financial markets and sheds light on the complex interplay between technological…

Abstract

Purpose

This study provides a comprehensive analysis of the potential contagion of Bitcoin on financial markets and sheds light on the complex interplay between technological advancements, accounting regulatory and financial market stability.

Design/methodology/approach

The study employs a multi-faceted approach to analyze the impact of BTC systemic risk, technological factors and regulatory variables on Asia–Pacific financial markets. Initially, a single-index model is used to estimate the systematic risk of BTC to financial markets. The study then uses ordinary least squares (OLS) to assess the potential impact of systemic risk, technological factors and regulatory variables on financial markets. To further control for time-varying factors common to all countries, a fixed effect (FE) panel data analysis is implemented. Additionally, a multinomial logistic regression model is utilized to evaluate the presence of contagion.

Findings

Results indicate that Bitcoin's systemic risk to the Asia–Pacific financial markets is relatively weak. Furthermore, technological advancements and international accounting standard adoption appear to indirectly stabilize these markets. The degree of contagion is also found to be stronger in foreign currencies (FX) than in stock index (INDEX) markets.

Research limitations/implications

This study has several limitations that should be considered when interpreting the study findings. First, the definition of financial contagion is not universally accepted, and the study results are based on the specific definition and methodology. Second, the matching of daily financial market and BTC data with annual technological and regulatory variable data may have limited the strength of the study findings. However, the authors’ use of both parametric and nonparametric methods provides insights that may inspire further research into cryptocurrency markets and financial contagions.

Practical implications

Based on the authors analysis, they suggest that financial market regulators prioritize the development and adoption of new technologies and international accounting standard practices, rather than focusing solely on the potential risks associated with cryptocurrencies. While a cryptocurrency crash could harm individual investors, it is unlikely to pose a significant threat to the overall financial system.

Originality/value

To the best of the authors knowledge, they have not found an asset pricing approach to assess a possible contagion. The authors have developed a new method to evaluate whether there is a contagion from BTC to financial markets. A simple but intuitive asset pricing method to evaluate a systematic risk from a factor is a single index model. The single index model has been extensively used in stock markets but has not been used to evaluate the systemic risk potentials of cryptocurrencies. The authors followed Morck et al. (2000) and Durnev et al. (2004) to assess whether there is a systemic risk from BTC to financial markets. If the BTC possesses a systematic risk, the explanatory power of the BTC index model should be high. Therefore, the first implied contribution is to re-evaluate the findings from Aslanidis et al. (2019), Dahir et al. (2019) and Handika et al. (2019), using a different method.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 5 March 2024

Robert Owusu Boakye, Lord Mensah, Sanghoon Kang and Kofi Osei

The study measures the total systemic risks and connectedness across commodities, stocks, exchange rates and bond markets in Africa during the Covid-19 pandemic.

Abstract

Purpose

The study measures the total systemic risks and connectedness across commodities, stocks, exchange rates and bond markets in Africa during the Covid-19 pandemic.

Design/methodology/approach

The study uses the Diebold-Yilmaz spillover and connectedness measures in a generalized VAR framework. The author calculates the net transmitters or receivers of shocks between two assets and visualizes their strength using a network analysis tool.

Findings

The study found low systemic risks across all assets and countries. However, we found higher systemic risks in the forex market than in the stock and bond markets, and in South Africa than in other countries. The dynamic analysis found time-varying connectedness return shocks, which increased during the peak periods of the first and second waves of the pandemic. We found both gold and oil as net receivers of shocks. Overall, over half of all assets were net receivers, and others were net transmitters of return shocks. The network connectedness plot shows high net pairwise connectedness from Morocco to South Africa stock market.

Practical implications

The study has implications for policymakers to develop the capacities of local investors and markets to limit portfolio outflows during a crisis.

Originality/value

Previous studies have analyzed spillovers across asset classes in a single country or a single asset across countries. This paper contributes to the literature on network connectedness across assets and countries.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 4 April 2023

Chao Ren, Xiaoxing Liu and Ziyan Zhu

The purpose of this paper is to test the invulnerability of the guarantee network at the equilibrium point.

Abstract

Purpose

The purpose of this paper is to test the invulnerability of the guarantee network at the equilibrium point.

Design/methodology/approach

This paper introduces a tractable guarantee network model that captures the invulnerability of the network in terms of cascade-based attack. Furthermore, the equilibrium points are introduced for banks to determine loan origination.

Findings

The proposed approach not only develops equilibrium analysis as an extended perspective in the guarantee network, but also applies cascading failure method to construct the guarantee network. The equilibrium points are examined by simulating experiment. The invulnerability of the guarantee network is quantified by the survival of firms in the simulating progress.

Research limitations/implications

There is less study in equilibrium analysis of the guarantee network. Additionally, cascading failure model is expressed in the presented approach. Moreover, agent-based model can be extended in generating the guarantee network in the future study.

Originality/value

The approach of this paper presents a framework to analyze the equilibrium of the guarantee network. For this, the systemic risk of the whole guarantee network and each node's contribution are measured to predict the probability of default on cascading failure. Focusing on cascade failure process based on equilibrium point, the invulnerability of the guarantee network can be quantified.

Details

Kybernetes, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0368-492X

Keywords

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