Systemic Illiquidity Noise-Based Measure—A Solution for Systemic Liquidity Monitoring in Frontier and Emerging Markets
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Department of Applied Mathematics, University of Economics in Katowice, 40-287 Katowice, Poland
2
Department of Financial Investments and Risk Management, Wroclaw University of Economics and Business, 53-345 Wrocław, Poland
*
Author to whom correspondence should be addressed.
Academic Editor: Paolo Giudici
Risks 2021, 9(7), 124; https://doi.org/10.3390/risks9070124
Received: 1 April 2021
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Revised: 31 May 2021
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Accepted: 4 June 2021
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Published: 1 July 2021
(This article belongs to the Special Issue Data Analysis for Risk Management – Economics, Finance and Business)
The paper presents an alternative approach to measuring systemic illiquidity applicable to countries with frontier and emerging financial markets, where other existing methods are not applicable. We develop a novel Systemic Illiquidity Noise (SIN)-based measure, using the Nelson–Siegel–Svensson methodology in which we utilize the curve-fitting error as an indicator of financial system illiquidity. We empirically apply our method to a set of 10 divergent Central and Eastern Europe countries—Bulgaria, Croatia, Czechia, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, and Slovakia—in the period of 2006–2020. The results show three periods of increased risk in the sample period: the global financial crisis, the European public debt crisis, and the COVID-19 pandemic. They also allow us to identify three divergent sets of countries with different systemic liquidity risk characteristics. The analysis also illustrates the impact of the introduction of the euro on systemic illiquidity risk. The proposed methodology may be of consequence for financial system regulators and macroprudential bodies: it allows for contemporaneous monitoring of discussed risk at a minimal cost using well-known models and easily accessible data.
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Keywords:
systemic risk; systemic illiquidity; liquidity crisis; parametric models; quantitative methods; emerging markets; frontier markets; CEE
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MDPI and ACS Style
Dziwok, E.; Karaś, M.A. Systemic Illiquidity Noise-Based Measure—A Solution for Systemic Liquidity Monitoring in Frontier and Emerging Markets. Risks 2021, 9, 124. https://doi.org/10.3390/risks9070124
AMA Style
Dziwok E, Karaś MA. Systemic Illiquidity Noise-Based Measure—A Solution for Systemic Liquidity Monitoring in Frontier and Emerging Markets. Risks. 2021; 9(7):124. https://doi.org/10.3390/risks9070124
Chicago/Turabian StyleDziwok, Ewa, and Marta A. Karaś. 2021. "Systemic Illiquidity Noise-Based Measure—A Solution for Systemic Liquidity Monitoring in Frontier and Emerging Markets" Risks 9, no. 7: 124. https://doi.org/10.3390/risks9070124
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