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Measuring systemic risk in Asian foreign exchange markets

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  • Chen, Yanghan
  • Lin, Juan

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.

Suggested Citation

  • Chen, Yanghan & Lin, Juan, 2024. "Measuring systemic risk in Asian foreign exchange markets," Journal of International Money and Finance, Elsevier, vol. 146(C).
    • Handle: RePEc:eee:jimfin:v:146:y:2024:i:c:s0261560624001220
    DOI: 10.1016/j.jimonfin.2024.103135
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    More about this item

    Keywords

    Systemic risk; Joint probability of distress; Marginal probability of distress; Regional trade integration; Regional financial integration;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G01 - Financial Economics - - General - - - Financial Crises

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