Financial crisis and cointegration of systemic risk in Southeast Asian banking

Herman Saheruddin, Wahyoe Soedarmono

Abstract


This paper aims to investigate the banking sector integration through a cointegration analysis of bank systemic risk in ASEAN-5 from 1998 to 2013 by taking financial crises into consideration. Our empirical findings highlight that there is one cointegrating vector in general, suggesting that the ASEAN-5 banking sectors are not completely segmented in terms of systemic risk. A closer investigation, however, reveals that the banking sectors were completely segmented during the 1997/1998 Asian financial crisis (AFC) and partially segmented during the 2008 global financial crisis (GFC). The latter might indicate an improvement in banking sector integration in several countries of ASEAN-5 during the GFC compared to during the AFC. Hence, this paper highlights that the agenda of banking sector integration in ASEAN-5 should consider the influence of financial crises to ensure the effectiveness of cross-border crisis management protocol when the ASEAN-5 banking sector tends to be segmented in times of crisis. In general, portfolio diversification in ASEAN-5 also remains beneficial for global investors in banking.

JEL Classification: F36, G21, G28

DOI: https://doi.org/10.26905/jkdp.v23i4.3669

 


Keywords


ASEAN-5, bank systemic risk, financial crisis, financial integration

References


Baele, L., Ferrando, A., Hördahl, P., Krylova, E., & Monnet, C. (2004). Measuring financial integration in the Euro Area. European Central Bank Occasional Paper Series, 14.

Baig, T., & Goldfajn, I. (1999). Financial contagion in the Asian crisis. IMF Staff Papers, 46(2), 167-195. https://doi.org/10.2307/3867666

Bautista, C., Rous, P., & Tarazi, A. (2008). The determinants of domestic and cross border bank contagion risk in Southeast Asia. Revue économique, 59(6), 1215-1242. https://doi.org/10.3917/reco.596.1215

Beine, M., Cosma, A., & Vermeulen, R. (2010). The dark side of global integration: Increasing tail dependence. Journal of Banking and Finance, 34(1), 184–192. https://doi.org/10.2139/ssrn.1253362

Brouwer, G. (2005). Monetary and financial integration in Asia: Empirical evidence and issues. Asia Economic Cooperation and Integration. Manila: Asia Development Bank.

Chung, P., & Liu, D. (2004). Common stochastic trends in Pacific Rim stock markets. Quarterly Review of Economics and Finance, 34, 241-259. https://doi.org/10.1016/1062-9769(94)90026-4

Click, R. W., & Plummer, M. G. (2005). Stock market integration in ASEAN after the Asian financial crisis. Journal of Asian Economics, 16(1), 5-28. https://doi.org/10.1016/j.asieco.2004.11.018

Corhay, A., Rad, A. T., & Urbain, J. P. (1993). Common stochastic trends in European stock markets. Economics Letters, 42, 385–390. https://doi.org/10.1016/0165-1765(93)90090-Y

Dimpfl, T. (2014). A note on cointegration of international stock market indices. International Review of Financial Analysis, 33, 10-16. https://doi.org/10.1016/j.irfa.2013.07.005

Dwyer Jr, G. P., & Wallace, M. S. (1992). Cointegration and market efficiency. Journal of International Money and Finance, 11, 318–327. https://doi.org/10.1016/0261-5606(92)90027-U

Engle, R. (2002). Dynamic conditional correlation: a simple class of multivariate GARCH. Journal of Business and Economic Statistics, 17(5), 425–446.

Felman, J., Gray, S., Goswami, M., Jobst, A. A., Pradhan, M., Peiris, S., & Seneviratne, D. (2014). ASEAN5 bond market development: Where does it stand? Where is it going. Asian-Pacific Economic Literature, 28(1), 60-75. https://doi.org/10.1111/apel.12051

Forbes, K. J., & Rigobon, R. (2002). No contagion, only interdependence: measuring stock market comovements. The journal of Finance, 57(5), 2223-2261. https://doi.org/10.1111/0022-1082.00494

Gochoco–Bautista, M. S., & Remolona, E. M. (2017). The promises of bank integration in ASEAN: Is There a Catch?. The ASEAN Economic Community Into 2025 and Beyond Vol. 5.

Institute for International Monetary Affairs. (2006). Intra-regional exchange rate stability and prevention of financial crisis in East Asia. Working Group Report of the Network of East Asian Think-tanks (NEAT).

Kasa, K. (1992). Common stochastic trends in international stock markets. Journal of Monetary Economics, 29, 95-124. https://doi.org/10.1016/0304-3932(92)90025-W

Khan, S., & Park, K. W. K. (2009). Contagion in the stock markets: The Asian financial crisis revisited. Journal of Asian Economics, 20(5), 561-569. https://doi.org/10.1016/j.asieco.2009.07.001

Lence, S., & Falk, B. (2005). Cointegration, market integration, and market efficiency. Journal of International Money and Finance, 24(6), 873-890. https://doi.org/10.1016/j.jimonfin.2005.05.002

Lucey, B., Vigne, S. A., Ballester, L., Barbopoulos, L., Brzeszczynski, J., Carchano, O., Dimic, N., Fernandez, V., Gogolin, F., Gonzalez-Urteaga, A., Godwell, J.W., Helbing, P., Ichev, R., Keaney, F., Laing, E., Larkin, C.J., Lindbald, A., Loncarski, I., Ly K.C., Marinc, M., McGee R. J., McGroarty, F., Neville, C., O’Hagan-Luff, M., Piljak, V., Sevic, A., Sheng, X., Stafylas, D., Urquhart, A., Versteeg, R., Vu A., N., Wolfe, S., Yarovaya, L., & Zaghini A. (2018). Future directions in international financial integration research – A crowdsourced perspective. International Review of Financial Analysis, 56, 35-49. https://doi.org/10.1016/j.irfa.2017.10.008

Park, J. Y. (2013). Fed to taper bond-buying by $10 billion a month. Retrieved from: https://www.cnbc.com/2013/12/18/fed-begins-taper-program.html

Remolona, E. M., & Shim, I. (2015). The rise of regional banking in Asia and the Pacific. BIS Quarterly Review, 13, September, 119–34.

Richards, A. J. (1995). Comovements in national stock market returns: Evidence of predictability, but not cointegration. Journal of Monetary Economics, 36(3), 631-654.

https://doi.org/10.1016/0304-3932(95)01225-7

Soedarmono, W. (2018). Stock market integration in the Asia-Pacific Region: Evidence from cointegration of liquidity risk. Economics Bulletin, 38(1), 60-70.

Soedarmono, W., Sitorus, D., & Tarazi, A. (2017). Abnormal loan growth, credit information sharing and systemic risk in Asian banks. Research in International Business and Finance, 42, 1208-1218. https://doi.org/10.1016/j.ribaf.2017.07.058

Soedarmono, W., & Tarazi, A. (2013). Bank opacity, intermediation cost, and globalization: Evidence from a sample of publicly traded banks in Asia. Journal of Asian Economics, 29, 91-100. https://doi.org/10.1016/j.asieco.2013.09.003

Yamanaka, T. (2013). Integration of the ASEAN banking sector. Institute for International Monetary Affairs Newsletter, 1, 1-21.

Yu, I. W., Fung, K. P., & Tam, C. S. (2010). Assessing financial market integration in Asia–equity markets. Journal of Banking & Finance, 344, 2874-2885. https://doi.org/10.1016/j.jbankfin.2010.02.010.


Full Text: PDF

Refbacks

  • There are currently no refbacks.





WhatsApp Image 2020-01-06 at 15.29.25.jpeg WhatsApp Image 2020-02-03 at 12.18.45

 


Journal of Finance and Banking

Diploma Program of Banking and Finance
Faculty of Economics and Business University of Merdeka Malang

Mailing Address:

2nd-floor Banking and  Finance Building, Terusan Raya Dieng Street No.57 Malang, 65146, East Java, Indonesia
Phone/WhatsApp: +628123321664; Fax. +62 341 580511
Email:
jkpunmermlg@yahoo.com


Creative Commons License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.