Constructing a financial fragility index for emerging countries

Ahmet Sensoy, Kevser Ozturk and Erk Hacihasanoglu

Finance Research Letters, 2014, vol. 11, issue 4, 410-419

Abstract: This article proposes a novel framework to construct a financial fragility index (FIX) of an emerging country from five main variables by combining the methods of principal component analysis and dynamic conditional correlations. The main contribution of the FIX is the time-varying weighting scheme of the variables and it is demonstrated for a leading emerging market, Turkey. A comparison with the classic principal component approach on forecasting economic activity-expectations and a policy making application are presented.

Keywords: Financial fragility; Emerging markets; Dynamic conditional correlation; Principal component analysis; MIDAS regression (search for similar items in EconPapers)
JEL-codes: C38 C58 E44 F31 G01 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:11:y:2014:i:4:p:410-419

DOI: 10.1016/j.frl.2014.07.007

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