Banking Industry Volatility and Banking Crises

27 Pages Posted: 25 Aug 2008

See all articles by Fariborz Moshirian

Fariborz Moshirian

Institute of Global Finance, UNSW Business School

Qiongbing Wu

Western Sydney University


While studies using balance-sheet information of banks and macroeconomic indicators to forecast banking crises are prolific, empirical research using market information of banks is relatively sparse. We investigate whether banking industry volatility, constructed with the disaggregated approach from Campbell et al (2001) using exclusively publicly available market information of banks, is a good predictor of systemic banking crises in the analyses including data from 18 developed and 18 emerging markets. We find that banking industry volatility performs well in predicting systemic banking crises for developed markets but very poor for emerging markets, which suggest that the impact of market forces on the soundness of the banking system might be different for developed and emerging markets. We also find that those macroeconomic and banking risk management indicators have different impact on the probability of banking crises. Therefore, the traditional cross-country results of the studies on banking crises need to be interpreted cautiously.

Keywords: Banking crises, Volatility, Market forces

JEL Classification: G15, G21, G28

Suggested Citation

Moshirian, Fariborz and Wu, Qiongbing, Banking Industry Volatility and Banking Crises. Journal of International Financial Markets, Institutions and Money, Forthcoming. Available at SSRN:

Fariborz Moshirian

Institute of Global Finance, UNSW Business School ( email )

Sydney, NSW 2052
+61 2 93855859 (Phone)
+61 2 94877519 (Fax)

Qiongbing Wu (Contact Author)

Western Sydney University ( email )

Locked Bag 1797
Penrith South DC, NSW 2751
+61-2-96859805 (Phone)
+61-2-96859105 (Fax)


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