Stress events in the Hungarian stock market

Barbara Dömötör (barbara.domotor@uni-corvinus.hu) and Kata Váradi

Corvinus Economics Working Papers (CEWP) from Corvinus University of Budapest

Abstract: Central clearing and the role of central counterparties (CCP) has gained on importance in the financial sector, since counterparty risk of the trading is to be managed by them. The regulation has turned towards them lately, by defining several processes, how CCPs should measure and manage their risk. Stress situation is an important term of the regulation, however it is not specified clearly, how stress should be identified. This paper provides a possible definition of stress event based on the existing risk management methodology: the usage of risk measure oversteps, and investigates the potential stress periods of the last years on the Hungarian stock market. According to the results the definition needs further calibration based on the magnitude of the cross-sectional data. The paper examines furthermore whether stress is to be predicted from market liquidity. The connection of liquidity and market turmoil proved to be contrary to the expectations; liquidity shortage was rather a consequence, than a forecaster phenomenon in the tested period.

Keywords: EMIR regulation; Value at Risk models; market liquidity measurement; stress definition (search for similar items in EconPapers)
JEL-codes: G18 G28 G32 (search for similar items in EconPapers)
Date: 2016-01-20
New Economics Papers: this item is included in nep-fmk, nep-rmg and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:cvh:coecwp:2016/03

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