What are the most effective and vulnerable firms in financial crisis? A network representation of CoVaR in an emerging market

Abstract

In this paper, financial networks are applied to develop new measures of systemic risk. Using the CoVaR as a well-defined systemic risk measure, risk spillovers among different firms are estimated in Tehran Stock Exchange. Networks of systemic risk exposures are represented across time and two indices of vulnerability and systemic importance are introduced to define the most effective and vulnerable firms. The results show that the proposed network-based indices have a good performance to identify the vulnerable and systemically important firms. The results also show that when the market is in periods of financial downturn/crisis, the network interconnectedness was maximized.

Multidimensional risk spillovers among crude oil, the US and Chinese stock markets: Evidence during the COVID-19 epidemic

“…The way that we calculate TSI, VI and SII is in line with previous relative researches [ [1] , [2] , [3] , [4] , [5] , 9 , 10 , 32 , 33 , [42] , [43] , [44] , [45] , [46] , 49 , 50 ] that assume that all spillovers have the same weight. These studies calculate spillover indexes without considering the size of each market.…”

“…In the previous relative researches, shcolars employ CoVaR to measure the each part of the system to the others [ 1 , 3 , 4 , 7 , 32 ], however, it ignores how many various parts are exposed to the whole system in the case of systemic risk [ 45 ]. Therefore, referring to Dastkhan [ 45 , 46 ], the network theory is applied to measure the interconnections of variables, based on absolute values of that are computed for pairwise of variables. Array denotes the △CoVaR with n markets in a specific period t , where represents : …”

“…Another example, CSI300 is the most representative index in China, tracking the top 300 mainland listed firms, while ChiNext contains more than 800 listed companies. Therefore, the researches about the oil-stock relationships employ the way without considering the size of each market to study risk spillovers [ [1] , [2] , [3] , [4] , [5] , 9 , 10 , 32 , 33 , [42] , [43] , [44] , [45] , [46] , 49 , 50 ]. However, for further study, we also calculate TSI, VI and SII with considering the size of each market.…”