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Network Interdependence and Optimization of Bank Portfolios from Developed and Emerging Asia Pacific Countries

Jose Arreola Hernandez (), Sang Hoon Kang (), Ron P. McIver () and Seong-Min Yoon ()
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Jose Arreola Hernandez: Independent researcher
Sang Hoon Kang: Pusan National University
Ron P. McIver: UniSA Business, University of South Australia

Asia-Pacific Financial Markets, 2021, vol. 28, issue 4, No 6, 613-647

Abstract: Abstract We investigate the network structure of interdependence between bank returns from emerging and developed Asia Pacific and the Asia Pacific Financials index. We also examine the resource allocation and risk characteristics of bank equity portfolios from developed and emerging Asia Pacific countries. Our results are obtained through the application of a directional spillover index and portfolio optimisation methods. Risk spillovers among banks from the developed Asia Pacific economies are larger than those among banks from emerging Asia Pacific markets. Spillover transmission and reception of the Asia Pacific financial sector is larger to/from banks of developed markets than to/from banks of emerging markets. In the CVaR and portfolio optimisation analyses, the portfolio of developed banks has a higher CVaR than the portfolio of emerging banks, indicating that the developed banks are less attractive for investors. Lastly, the banks from Singapore, China, and Malaysia appear to be the best options for financial resource allocation. Our findings will help investors and risk managers, to facilitate their decision-making as to where to invest their financial resources, and in the design of international investment strategies within the banking sector.

Keywords: Bank equity returns; Network structure; Interdependence; Portfolio optimisation; Asia pacific markets (search for similar items in EconPapers)
JEL-codes: C58 F36 G11 G21 R10 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10690-021-09339-3

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