Measuring systemic risk in Asian foreign exchange markets

Yanghan Chen and Juan Lin

Journal of International Money and Finance, 2024, vol. 146, issue C

Abstract: This paper measures systemic risk in eight Asian foreign exchange markets between 2015 and 2021. We define systemic risk as the risk of significant devaluation in a large number of currencies. Our measures, derived using a time-varying factor copula model, can take into account heterogeneous and dynamic dependencies among markets. Our empirical findings reveal that (1) systemic risk spiked during the US-China trade conflict and the COVID-19 pandemic; (2) Among the currencies studied, the Japanese yen contributes most to systemic risk, while it is the least vulnerable to systemic shocks; (3) Higher levels of regional trade and financial integration increase a currency's vulnerability to systemic risk in the Asian foreign exchange markets.

Keywords: Systemic risk; Joint probability of distress; Marginal probability of distress; Regional trade integration; Regional financial integration (search for similar items in EconPapers)
JEL-codes: C23 F31 F41 G01 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:146:y:2024:i:c:s0261560624001220

DOI: 10.1016/j.jimonfin.2024.103135

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