Measuring the risk of financial contagion on the Moroccan stock market

Abstract

Financial contagion occurs when a deterioration in one financial sector has repercussions on other sectors, or even on the entire financial system. The measurement of systemic risk often involves the use of sectoral indices, to assess how shocks in one sector can spread to others, endangering the overall stability of the financial system. These sector indices offer a view of the relative health of different economic sectors, making it easier to understand how risks can spread. It's a bit like deciphering the movements of a chess game, where each economic sector is a piece, and the movements of each have repercussions on the system as a whole. Financial analysts use various mathematical and statistical models to quantify these risks and anticipate possible scenarios. In this article, we adopted the CoVaR model to assess intersectoral contagion in the context of the covid-19 health crisis. Our main objective was to address a central problem based on measuring systemic risk and ranking selected stock market indices according to their systemic importance. This approach offers a macroprudential perspective, thereby broadening the measurement of risk. It should be noted that our method represents a forward-looking approach to the contribution to contagion risk. This contribution is defined as the Value at Risk (VaR) of the financial system when institutions go through a period of crisis. In other words, we examine how each selected stock market index could contribute to the overall risk of contagion when the financial system faces difficulties. This approach enables a more in-depth assessment of financial stability, providing essential information for informed decision-making in the current economic context, marked by the covid-19 crisis. The aim of this article is to assess the risk of financial contagion on the Moroccan stock market, with a particular focus on two stock market indices, namely Hotels and Banks. This assessment focuses on the period of the COVID-19 pandemic, from January 1, 2020 to December 31, 2021.

Key Words : Financial crisis; Risk management ; Measuring the risk of financial contagion , the CoVaR approach.

Classification JEL : G01, G10. 

Paper type: Empirical Research