Financial stress testing in US banking sector

Geetha, K.T.; Suganthi, L.; Vasanthi, K.; Kavitha, B.

doi:10.1016/j.matpr.2020.07.700

Cited by 4 publications

(4 citation statements)

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“…Financial stress can be connected to financial instability through entities' failures [24]. For instance, if the banking system is under stress, banks may be more likely to fail [13,19,25,26]. The situation of loss of trust in the financial system followed by a rise in inflation can make it difficult for borrowers and businesses to access funding [27].…”

Section: Introductionmentioning

confidence: 99%

“…Past research shows that financial stress affects different classes of economies and main markets, circulating within countries as well as expanding to different economic sectors. The literature reports its spread to various markets and expansion, mainly in financial markets, showing a connection with the foreign exchange market [15,22,34], banking crises [23,26,35] oscillations in equity and bond markets [30,[36][37][38][39] monetary policy [40,41] and the crypto market [42]. As for commodities, a great amount of research has focused on energy related commodities, Refs.…”

Section: Introductionmentioning

confidence: 99%

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Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

Ahmed,

Aslam,

Ferreira

2024

Fractal Fract

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Financial stress can have significant implications for individuals, businesses, asset prices and the economy as a whole. This study examines the nonlinear structure and dynamic changes in the multifractal behavior of cross-correlation between the financial stress index (FSI) and four well-known commodity indices, namely Commodity Research Bureau Index (CRBI), Baltic Dry Index (BDI), London Metal Index (LME) and Brent Oil prices (BROIL), using multifractal detrended cross correlation analysis (MFDCCA). For analysis, we utilized daily values of FSI and commodity index prices from 16 June 2016 to 9 July 2023. The following are the most important empirical findings: (I) All of the chosen commodity market indices show cross correlations with the FSI and have notable multifractal characteristics. (II) The presence of power law cross-correlation implies that a noteworthy shift in FSI is likely to coincide with a considerable shift in the commodity indices. (III) The multifractal cross-correlation is highest between FSI and Brent Oil (BROIL) and lowest with LME. (IV) The rolling windows analysis reveals a varying degree of persistency between FSI and commodity markets. The findings of this study have a number of important implications for commodity market investors and policymakers.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

Ahmed,

Aslam,

Ferreira

2024

Fractal Fract

View full text Add to dashboard Cite

show abstract

“…be connected to financial instability through entities' failures [25]. For instance, if the banking system is under stress, banks may be more likely to fail [14,20,26,27]. The situation of loss of trust in the financial system followed by a rise in inflation can make it difficult for borrowers and businesses to access funding [28].…”

Section: Introductionmentioning

confidence: 99%

“…Past research shows that financial stress affects different classes of economies and main markets, circulating within countries as well as expanding to different economic sectors. The literature reports its spread to various markets and expansion, mainly in financial markets, showing a connection with the foreign exchange market [16,23,35], banking crises [24,27,36] oscillations in equity and bond markets [31,[37][38][39][40][41] monetary policy [42,43] and the crypto market [44]. In the commodities a great amount of research has focused on energy related commodities, [45][46][47][48] revealing a meaningful association with energy markets.…”

Section: Introductionmentioning

confidence: 99%

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

Ahmed,

Aslam,

Ferreira

2023

Preprint

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Financial stress can have significant implications for individuals, businesses, asset prices and the economy as a whole. This study examines the nonlinear structure and dynamic changes in the multifractal behavior of cross-correlation between the financial stress index (FSI) and four well-known commodity indices, namely Commodity Research Bureau Index (CRBI), Baltic Dry Index (BDI), London Metal Index (LME) and Brent Oil prices (BROIL), using multifractal detrended cross correlation analysis (MFDCCA). For analysis, we utilized daily values of FSI and commodity index prices from 16th June 2016 to 9th July 2023. The following are the most important empirical findings: (I) All of the chosen commodity market indices show cross correlations with the FSI and have notable multifractal characteristics. (II) The presence of power law cross-correlation implies that a noteworthy shift in FSI is likely to coincide with a considerable shift in the commodity indices. (III) The multifractal cross-correlation is highest between FSI and Brent Oil (BROIL) and lowest with LME. (IV) The rolling windows analysis reveals a varying degree of persistency between FSI and commodity markets. The findings of this study have a number of important implications for commodity market investors and policymakers.

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Оцінка Інвестиційної Привабливості Банківського Сектору Сша Для Міноритарних Інвесторів: Теоретико-Прикладний Аспект

Morhachov¹,

Ovcharenko²,

Овєчкіна³

et al. 2021

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Abstract. The aim of the work is to prove the appropriateness for minority investors of investing in shares of US banks only with speculative, and not investment intentions; identifying the reasons why long-term investment in the sector is not appropriateness in the presence of a fundamental enabling environment for its development. In the article, the US banking sector is considered as an object of long-term investment for investors who plan to be only minority shareholders, including for citizens of Ukraine. The main research methods in the paper are a graphical analysis of the dynamics of share prices of key US banks and determine the average annual growth rate of the market value of their shares. This average annual growth rate of the value of shares of the respective banks was compared with the dynamics of the stock index S & P-500. The sector is characterized by favorable conditions for development, but the paper proves the hypothesis of the feasibility of investing in shares of US banks only with speculative rather than investment intentions. The factors of inexpediency of long-term investment in this sector in the presence of fundamental favorable conditions for the development of the sector in the country are specified. It is determined that the speculative nature of investments in the US banking sector is due to the lack of sustainable long-term growth of shares of the respective banks at a rate exceeding the growth rate of the stock index S&P-500. The main reasons that hinder the sustainable development of the US banking sector and prevent investment in this sector to outpace the efficiency of investment in the broad market was specified. The main such factors are the significant impact on banking activities of both macroeconomic crises and crises in certain sectors of the economy that are customers of banks. Since the clients of banks are almost all sectors of the economy, the list of possible sectoral crises, which are pass on the banking system in proportion to the volume of lending, is quite significant. This makes investing in the banking sector more risky than investing in other sectors of the economy. The property of the US banking sector and its of state regulation to evolve in the direction of improving the ability to counter economic crises is specified. This property reduces the reliability of forecasts for the development of the studied sector similarly to the dynamics of past periods and forces to plan events in a more optimistic scenario. The heterogeneity of the US banking sector in terms of asset structure and the level of diversification of activities has been identified, which allows individual banks of the country to go through periods of economic crisis in different ways. Keywords: US banking sector, stocks, S&P stock index-500, investments, economic crises. JEL Classification G21, G24, G12 Formulas: 2; fig.: 0; tabl.: 2; bibl.: 21.

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Financial stress testing in US banking sector

Cited by 4 publications

References 23 publications

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

Navigating Choppy Waters: Interplay between Financial Stress and Commodity Market Indices

Оцінка Інвестиційної Привабливості Банківського Сектору Сша Для Міноритарних Інвесторів: Теоретико-Прикладний Аспект

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