Three essays on systemic risk in Asian emerging markets

Author Identifier

Thach Ngoc Pham

Date of Award


Document Type



Edith Cowan University

Degree Name

Doctor of Philosophy


School of Business and Law

First Supervisor

Robert Powell

Second Supervisor

Deepa Bannigidadmath


The increasing economic globalisation and continuous integration of the financial market have led to a large body of literature on financial networks. While globalisation and market integration trends enable markets to achieve risk sharing through better capital allocation, resulting in stronger economic development, they may have unintended consequences, such as increased financial fragility and unpredictable long-term growth due to stock market volatility. Furthermore, systemic risk has attracted extensive research interest among scholars and practitioners since the collapse of Lehman Brothers, followed by the global financial crisis in 2008.

This thesis consists of three essays examining the systemic risk of nine Asian emerging markets from three different perspectives, including size, interconnectedness and volatility predictability. The motivation for considering Asian emerging markets in the analysis is the rapid economic growth and significant development in their financial systems over the last decade. The Asian emerging markets’ growth rates have outperformed other parts of the world, thereby becoming a primary driver of the global economy. Financial markets and the banking industry in Asian emerging markets have grown significantly in size and interconnectedness over the last two decades, implying that strengthening financial stability in Asian banks is crucial globally. In 2021, China, India, Korea and Taiwan were among the world’s top 20 largest stock exchanges by market capitalisation. Owing to ongoing financial market deregulation and capital account liberalisation, Asia’s share of global FDI has increased in recent years, rising from 27.8% in 2016 to 53.6% in 2020. As a result, there is a need for a comprehensive understanding of the systemic risk of the banking industry in Asian emerging markets for several stakeholders, including financial institutions, central banks, policymakers, investors and general consumers.

Specifically, the thesis aims to (1) identify the domestic systemically important banks and regional systemically important banks (RSIBs) in nine Asian emerging markets using multiple market-based measures and compare the differences (if any) between these measures; (2) build the tail risk network of Asian emerging markets and identify the risk emitters and risk receivers at country and individual bank levels; and (3) explore whether the realised volatility (RV) of global systemically important banks (GSIBs) in advanced countries contain useful information in predicting RV of Asian banks.

This thesis unveils a number of findings. The first essay reveals that in terms of systemic risk contribution (i.e., size), banks in China contributed the vast majority of the region’s systemic risk. At the regional level, the similarities and correlations among four systemic risk measures in determining the top systemically important banks were significant, but they varied by country, implying that using a single measure to assess systemic risk should be done with caution. The first essay also ranks the top 10 RSIBs in Asian emerging markets, as well as the top three domestic systemically important banks in each of the region’s nine countries. The second essay demonstrates that banks in Malaysia and Taiwan were the tail risk emitters, while banks in Indonesia, India, the Philippines and Pakistan were the tail risk receivers of the region. The tail risk network of Asian emerging market banks is more interconnected during more extreme market conditions. There is evidence that the tail risk network of Asian emerging market banks changes over time, caused primarily by cross-country connectivity. Finally, the third essay shows that the monthly RV of GSIBs from advanced countries has a significant positive impact on the volatility of banks in Asian emerging markets for the next one-month horizon, with GSIBs from the United States playing a dominant role. In addition, the results provide evidence of asymmetry in volatility forecasting, with bad volatility and economic recession dominating.

This thesis addresses a number of research gaps and makes a novel contribution to the current literature of systemic risk by identifying regional and domestic systemically important banks, building tail risk networks and investigating volatility predictability of banks in Asian emerging markets. Findings from this thesis provide various important implications for policy makers and investors from an international financial market perspective in many areas, including financial and systemic risk management, practical portfolio management, hedging international banking sector stocks and economic policies.



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