Preprint Concept Paper Version 1 This version not peer reviewed

Market Spread an Indicator of Systemic Risk in India

Version 1 : Received: 14 February 2017 / Approved: 15 February 2017 / Online: 15 February 2017 (10:40:33 CET)

How to cite: Karmakar, S.; Bandyopadhyay, G. Market Spread an Indicator of Systemic Risk in India. Preprints 2017, 2017020053 (doi: 10.20944/preprints201702.0053.v1). Karmakar, S.; Bandyopadhyay, G. Market Spread an Indicator of Systemic Risk in India. Preprints 2017, 2017020053 (doi: 10.20944/preprints201702.0053.v1).

Abstract

The Estimation of systemic risk in India is still in its infancy stage. There are several methods which are available but none of the methods are fully compatible to forecast the systemic risk since under different circumstances the factors responsible for the risk differs. In this paper the systemic risk estimation in India being carried out based on spread in daily stock market price(Difference between the bid and ask price of a share) of the top 100 firms in India according to market capitalization for the period of July2007 to March 2016. The results were compared with the Financial Stability Report published by Reserve Bank Of India for the period of March 2010 to June 2016.The results clearly indicates that there exits relationship between market illiquidity represented by spread and risks associated with the Financial System. In most of the cases the Z score (deviation from the mean/Standard Deviation) of the spread has become negative which provides the spread which is farther from the mean, also a good indicator of volatility in market and risk to financial system. It is also seen that the Systemic Risk Survey conducted by Reserve Bank of India which started during October 2011 has supported the results.

Subject Areas

Systemic risk; Systemically Important Firms(SIFs); Stock Price; Stock Price (Close); Stock Price (Open); Stock Price: Bid; Stock Price: Ask; Stock Price: Spread; Joint Probability of Distress(JPoD); Banking Stability Index (BSI); Co-Risk Model

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