Interconnectedness and systemic risk: Evidence from global stock markets

Cevik E. I., Caliskan Terzioglu H., KILIÇ Y., Bugan M. F., Dibooglu S.

Research in International Business and Finance, vol.69, 2024 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 69
  • Publication Date: 2024
  • Doi Number: 10.1016/j.ribaf.2024.102282
  • Journal Name: Research in International Business and Finance
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, EconLit
  • Keywords: Component expected shortfall, Financial contagion, Financial stability, Portfolio diversification, Systemic risk
  • Akdeniz University Affiliated: Yes


The study aims to examine systemically important stock markets in the global financial system within the scope of portfolio theory. For this purpose, we use daily stock market indices from 46 countries (23 developed and 23 developing stock markets) in North America, Latin America, the Middle East and Africa, Asia, the Pacific, Eastern Europe, and Europe between 1995 and 2021. Based on the Component Expected Shortfall (CES), we identify systemically important stock markets and use the quantile spillover analysis to examine the financial contagion and directional spillovers emanating from downside risks among stock markets. Overall, we observe stock markets of developed countries figured prominently in terms of systemic risk until the Global Financial Crisis (2007–2009; henceforth GFC), while developing country stock markets particularly those of China and India gained traction after the GFC. Moreover, we observe a shift in terms of systemic risk in recent years from the West to the East geographically. To increase global financial market resilience and improve stability, supervision, and macroprudential policies can be formulated to limit risk spillovers in global stock markets. Additionally, it is critical to diversify investments outside equity markets, such as currency, bond, gold, and oil asset classes. When considering overseas portfolio choices for diversity, investors should keep the financial spillover effects in mind.