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Systemic risk in Taiwan stock market

    Her-Jiun Sheu Affiliation
    ; Chien-Ling Cheng Affiliation

Abstract

Recent financial crises resulted from systemic risk caused by idiosyncratic distress. In this research, taking Taiwan stock market as an example and collecting data from 2000 to 2010 which contained the 2001 dot-com bubble and the 2007–2009 financial crisis, we adopt the CoVaR model to empirically explore the impact of sector-specific idiosyncratic risk on the systemic risk of the system and attempt to investigate the links between financial crises, systemic risk and the idiosyncratic risk of a sector-specific anomaly. The result showed sector-specific marginal CoVaR, i.e., ΔCoVaR, perfectly explained Taiwan stock market disturbance during the 2001 dot-com bubble and 2007–2008 financial crisis. Thus, by identifying the larger ΔCoVaR sectors, i.e. the systemic importance sectors, and by exploring the risk indicators, independent variables, of these systemic importance sectors, investors could practically employ the sector-specific ΔCoVaR measure to deepen the systemic risk scrutiny from a macro into a micro prudential perspective.

Keyword : value at risk, Conditional VaR, systemic risk, idiosyncratic risk, fi nancial crisis, spill over, systemic importance

How to Cite
Sheu, H.-J., & Cheng, C.-L. (2012). Systemic risk in Taiwan stock market. Journal of Business Economics and Management, 13(5), 895-914. https://doi.org/10.3846/16111699.2011.620168
Published in Issue
Oct 4, 2012
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