Dependence patterns among Asian banking sector stocks: A copula approach |
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| Institution: | 1. Wits Business School, University of the Witwatersrand, 2 St. Davids Place, Parktown, Johannesburg 2193, South Africa;2. School of Business and Economics, University of Brunei Darussalam, Jalan Tungku Link, Gadong BE 1410, Brunei Darussalam;1. Department of Economics, Faculty of Economics & Administration, University of Malaya, 50603 Kuala Lumpur, Malaysia;2. Labuan Faculty of International Finance, Universiti Malaysia Sabah, Malaysia;3. Finance Section, School of Management, Universiti Sains Malaysia, Malaysia;1. Swansea University, United Kingdom;2. University of Manchester, United Kingdom;1. Faculty of Business, Multimedia University, Melaka, Malaysia, Malaysia;2. Faculty of Management, Multimedia University, Cyberjaya, Malaysia, Malaysia;1. ESCP Europe Business School, London Campus, Department of Financial Reporting and Audit, 527 Finchley Road, London NW3 7BG, UK;2. Department of Accounting and Finance, School of Business, Athens University of Economics and Business (AUEB), 76 Patision Str., Athens, GR10434, Greece;1. University of Tunis, Higher Institute of Management of Tunis, University of Manouba, RIGUEUR Laboratory, Manouba, Tunisia;2. EDC Paris Business School, OCRE-Lab, Paris, France |
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| Abstract: | Asian banks have recorded 22 banking crisis between 1945 and 2008 and its total share of years in a banking crisis since 1945 is 12.4%, the highest compared to all regions. Interestingly, most of the financial institutions in the region remained largely unscathed during the recent global financial crisis, mainly due to their strong liquidity and capital buffers. Yet, given the episodes of past crisis, the rapid increase in regional corporations and cross-border flows in the region, as well as the paramount importance of the banking sector in the Asian region, it is interesting to study how the banking sectors in the various economies co-move with each other. Against this backdrop, we examine the dependence structure between banking sectors in the region using copula functions. Several findings are documented. First, average dependence generally remain at moderate levels, though dependence between the banking sectors of the developed Asian markets are relatively higher than the emerging markets. Second, we find evidence of asymmetric dependence, suggesting that banking sector returns co-movement varies in bearish and bullish markets. Third, our results show a mild increase in the bivariate dynamic correlations during crisis periods, indicating very limited risk of contagion. Our results provide significant implications for portfolio managers and policymakers. |
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| Keywords: | Asia banking sector International correlation Dependence Copula model |
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