Abstract
We investigate the network structure of interdependence between bank returns from emerging and developed Asia Pacific and the Asia Pacific Financials index. We also examine the resource allocation and risk characteristics of bank equity portfolios from developed and emerging Asia Pacific countries. Our results are obtained through the application of a directional spillover index and portfolio optimisation methods. Risk spillovers among banks from the developed Asia Pacific economies are larger than those among banks from emerging Asia Pacific markets. Spillover transmission and reception of the Asia Pacific financial sector is larger to/from banks of developed markets than to/from banks of emerging markets. In the CVaR and portfolio optimisation analyses, the portfolio of developed banks has a higher CVaR than the portfolio of emerging banks, indicating that the developed banks are less attractive for investors. Lastly, the banks from Singapore, China, and Malaysia appear to be the best options for financial resource allocation. Our findings will help investors and risk managers, to facilitate their decision-making as to where to invest their financial resources, and in the design of international investment strategies within the banking sector.
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Notes
Acemoglu et al. (2015) argued that the extent of financial contagion exhibits a form of phase transition, and the same factors that contribute to resilience under certain conditions may function as significant sources of systemic risk under others.
Correlation matrices of the portfolios of banks can requested from the corresponding author.
Using the same approach, we conduct the robustness test for developed banks (see "Appendix").
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Acknowledgements
This work was supported by the Ministry of Education of the Republic of Korea and the National Research Foundation of Korea (NRF-2020S1A5B8103268).
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Arreola Hernandez, J., Kang, S.H., McIver, R.P. et al. Network Interdependence and Optimization of Bank Portfolios from Developed and Emerging Asia Pacific Countries. Asia-Pac Financ Markets 28, 613–647 (2021). https://doi.org/10.1007/s10690-021-09339-3
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DOI: https://doi.org/10.1007/s10690-021-09339-3