Analyzing the contribution of ASEAN stock markets to systemic risk

Abstract

In this paper, seven stock markets from six countries (Thailand, Malaysia, Indonesia, Vietnam, the Philippines, and Singapore) and their risk contribution to ASEAN stock system are investigated using the Component Expected Shortfall approach. Prior to computing this systemic risk measure, we need to compute a dynamic correlation, thus the study proposes a Markov Switching copula with time varying parameter to measure the dynamic correlation between each pair of stock market index and ASEAN stock system. The empirical results show that Philippines stock index contributed the highest risk to the ASEAN stock system.