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Systemic Risks Assessment and Systemic Events Prediction: Early Warning System Design for the Czech Republic
Žigraiová, Diana ; Jakubík, Petr (advisor) ; Doležel, Pavel (referee)
This thesis develops an early warning system framework for assessing systemic risks and for predicting systemic events, i.e. periods of extreme financial instability with potential real costs, over the short horizon of six quarters and the long horizon of twelve quarters on the panel of 14 countries both advanced and developing. Firstly, Financial Stress Index is built aggregating indicators from equity, foreign exchange, security and money markets in order to identify starting dates of systemic financial crises for each country in the panel. Secondly, the selection of early warning indicators for assessment and prediction of systemic risks is undertaken in a two- step approach; relevant prediction horizons for each indicator are found by means of a univariate logit model followed by the application of Bayesian model averaging method to identify the most useful indicators. Next, logit models containing useful indicators only are estimated on the panel while their in-sample and out-of-sample performance is assessed by a variety of measures. Finally, having applied the constructed EWS for both horizons to the Czech Republic it was found that even though models for both horizons perform very well in-sample, i.e. both predict 100% of crises, only the long model attains the maximum utility of 0,5 as...
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Essays in Empirical Financial Economics
Žigraiová, Diana ; Jakubík, Petr (advisor) ; Witzany, Jiří (referee) ; Teplý, Petr (referee) ; Gächter, Martin (referee)
This dissertation is composed of four essays that empirically investigate three topics in financial economics; financial stress and its leading indicators, the relationship between bank competition and financial stability, and the link between management board composition and bank risk. In the first essay we examine which variables have predictive power for financial stress in 25 OECD countries, using a recently constructed financial stress index. We find that panel models can hardly explain FSI dynamics. Although better results are achieved in country models, our findings suggest that financial stress is hard to predict out-of- sample despite the reasonably good in-sample performance of the models. The second essay develops an early warning framework for assessing systemic risks and predicting systemic events over two horizons of different length on a panel of 14 countries. We build a financial stress index to identify the starting dates of systemic financial crises and select crisis-leading indicators in a two-step approach; we find relevant prediction horizons for each indicator and employ Bayesian model averaging to identify the most useful predictors. We find superior performance of the long-horizon model for the Czech Republic. The theoretical literature gives conflicting predictions on how bank...
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Essays in Empirical Financial Economics
Žigraiová, Diana ; Jakubík, Petr (advisor) ; Witzany, Jiří (referee) ; Teplý, Petr (referee) ; Gächter, Martin (referee)
This dissertation is composed of four essays that empirically investigate three topics in financial economics; financial stress and its leading indicators, the relationship between bank competition and financial stability, and the link between management board composition and bank risk. In the first essay we examine which variables have predictive power for financial stress in 25 OECD countries, using a recently constructed financial stress index. We find that panel models can hardly explain FSI dynamics. Although better results are achieved in country models, our findings suggest that financial stress is hard to predict out-of- sample despite the reasonably good in-sample performance of the models. The second essay develops an early warning framework for assessing systemic risks and predicting systemic events over two horizons of different length on a panel of 14 countries. We build a financial stress index to identify the starting dates of systemic financial crises and select crisis-leading indicators in a two-step approach; we find relevant prediction horizons for each indicator and employ Bayesian model averaging to identify the most useful predictors. We find superior performance of the long-horizon model for the Czech Republic. The theoretical literature gives conflicting predictions on how bank...
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Essays in Empirical Financial Economics
Žigraiová, Diana ; Jakubík, Petr (advisor) ; Witzany, Jiří (referee) ; Teplý, Petr (referee) ; Gächter, Martin (referee)
This dissertation is composed of four essays that empirically investigate three topics in financial economics; financial stress and its leading indicators, the relationship between bank competition and financial stability, and the link between management board composition and bank risk. In the first essay we examine which variables have predictive power for financial stress in 25 OECD countries, using a recently constructed financial stress index. We find that panel models can hardly explain FSI dynamics. Although better results are achieved in country models, our findings suggest that financial stress is hard to predict out-of- sample despite the reasonably good in-sample performance of the models. The second essay develops an early warning framework for assessing systemic risks and predicting systemic events over two horizons of different length on a panel of 14 countries. We build a financial stress index to identify the starting dates of systemic financial crises and select crisis-leading indicators in a two-step approach; we find relevant prediction horizons for each indicator and employ Bayesian model averaging to identify the most useful predictors. We find superior performance of the long-horizon model for the Czech Republic. The theoretical literature gives conflicting predictions on how bank...
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Systemic Risks Assessment and Systemic Events Prediction: Early Warning System Design for the Czech Republic
Žigraiová, Diana ; Jakubík, Petr (advisor) ; Doležel, Pavel (referee)
This thesis develops an early warning system framework for assessing systemic risks and for predicting systemic events, i.e. periods of extreme financial instability with potential real costs, over the short horizon of six quarters and the long horizon of twelve quarters on the panel of 14 countries both advanced and developing. Firstly, Financial Stress Index is built aggregating indicators from equity, foreign exchange, security and money markets in order to identify starting dates of systemic financial crises for each country in the panel. Secondly, the selection of early warning indicators for assessment and prediction of systemic risks is undertaken in a two- step approach; relevant prediction horizons for each indicator are found by means of a univariate logit model followed by the application of Bayesian model averaging method to identify the most useful indicators. Next, logit models containing useful indicators only are estimated on the panel while their in-sample and out-of-sample performance is assessed by a variety of measures. Finally, having applied the constructed EWS for both horizons to the Czech Republic it was found that even though models for both horizons perform very well in-sample, i.e. both predict 100% of crises, only the long model attains the maximum utility of 0,5 as...
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Banking and Currency Crises: Differential Diagnostics for Developed Countries
Joy, Mark ; Rusnák, Marek ; Šmídková, Kateřina ; Vašíček, Bořek
We identify a set of “rules of thumb” that characterise economic, financial and structural conditions preceding the onset of banking and currency crises in 36 advanced economies over 1970–2010. We use the Classification and Regression Tree methodology (CART) and its Random Forest (RF) extension, which permits the detection of key variables driving binary crisis outcomes, allows for interactions among key variables and determines critical tipping points. We distinguish between basic country conditions, country structural characteristics and international developments. We find that crises are more varied than they are similar. For banking crises we find that low net interest rate spreads in the banking sector and a shallow or inverted yield curve are their most important forerunners in the short term, whereas in the longer term it is high house price inflation. For currency crises, high domestic short-term rates coupled with overvalued exchange rates are the most powerful short-term predictors. We find that both country structural characteristics and international developments are relevant banking crisis predictors. Currency crises, however, seem to be driven more by country idiosyncratic, short-term developments. We find that some variables, such as the domestic credit gap, provide important unconditional signals, but it is difficult to use them as conditional signals and, more importantly, to find relevant threshold values.
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