Munich Personal RePEc Archive

Stock return comovement and systemic risk in the Turkish banking system

Binici, Mahir and Köksal, Bülent and Orman, Cüneyt (2012): Stock return comovement and systemic risk in the Turkish banking system.

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Abstract

This paper investigates the evolution of systemic risk in the Turkish banking sector over the past two decades using comovement of banks’ stock returns as a systemic risk indicator. In addition, we explore possible determinants of systemic risk, the knowledge of which can be a useful input into effective macroprudential policymaking. Results show that the correlations between bank stock returns almost doubled in 2000s in comparison to 1990s. The correlations decreased somewhat after 2002 and increased again as a result of the 2007-2009 financial crisis. Main determinants of systemic risk appear to be the market share of bank pairs, the amount of non-performing loans, herding behavior of banks, and volatilities of macro variables including the exchange rate, U.S. T-bills, EMBI+, VIX, and MSCI emerging markets index.

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