An index of financial market stress for the United Kingdom

Authors

  • Shaen Corbet Dublin City University (DCU)
  • Cian Twomey J.E. Cairnes School of Business and Economics, National University of Ireland, Galway, (NUIG).

DOI:

https://doi.org/10.17811/ebl.3.2.2014.127-133

Abstract

We construct and develop a new financial market stress index using twenty-three headline U.K. financial data series. A logistic regression framework provides a parsimonious representation of financial market stress in the U.K. based on the market dynamics around the time of Bank of England crisis-alleviating economic interventions. Our results present clear evidence that the Bank of England’s swift and decisive actions stemmed financial market stress as measured by the stress index.

Author Biographies

Shaen Corbet, Dublin City University (DCU)

Lecturer (Finance),

DCU Business School (DCUBS),

Dublin City University (DCU),

Dublin, Ireland.

Cian Twomey, J.E. Cairnes School of Business and Economics, National University of Ireland, Galway, (NUIG).

Lecturer (Finance),

J.E. Cairnes School of Business and Economics,

National University of Ireland, Galway, (NUIG),

Ireland.

References

Carlson, M., Lewis, K., Nelson, W. (2014) Using policy intervention to identify financial stress, International Journal of Finance and Economics, forthcoming.

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Grimaldi, M., (2010) Detecting and interpreting financial stress in the Euro area, Working Paper Series, 1214, European Central Bank.

Hollo, D., Kremer, M., Lo Duca, M., (2012) CISS – a composite indicator of systemic stress in the financial system, Working Paper Series, 1426, European Central Bank.

Illing, M., Liu, Y., (2003) An index of Financial Stress for Canada, Working Papers, 03-14, Bank of Canada.

Kaminsky, G.L., Reinhart, C.M., Financial markets in times of stress, Journal of Development Economics, 69, 451-470.

Louzis, D., Vouldis, A., (2013) A financial systematic stress index for Greece, Working Paper Series, 1563, European Central Bank.

Nelson, W.R., Perli, R. (2007) Selected indicators of financial stability, Risk Measurement and Systemic Risk, 4, 343-372.

Oet, M.V., Eiber, R., Bianco, T., Gramlich, D., Ong, S., (2011) The financial stress index: identification of systemic risk conditions, Cleveland Federal Reserve Bank, 1130.

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Published

2014-09-26

How to Cite

Corbet, S., & Twomey, C. (2014). An index of financial market stress for the United Kingdom. Economics and Business Letters, 3(2), 127-133. https://doi.org/10.17811/ebl.3.2.2014.127-133