Financial crisis and cointegration of systemic risk in Southeast Asian banking
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
Full Text:
PDFReferences
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.
DOI: https://doi.org/10.26905/jkdp.v23i4.3669
Refbacks
- There are currently no refbacks.
Jurnal Keuangan dan Perbankan (Journal of Finance and Banking)
Diploma Program of Banking and Finance, Faculty of Economics and Business, University of Merdeka Malang
Published by University of Merdeka Malang
Mailing Address:
2nd floor Finance and Banking Building, Jl. Terusan Raya Dieng No. 57 Malang, East Java, Indonesia
Phone: -
Email: [email protected]
This work is licensed under a Creative
Commons Attribution-ShareAlike 4.0