Analyzing the Predictive Relationship between Systemic Risks and Financial Shocks: An Analytical Study in the Iraqi Banking Sector

Abstract

The research aims to provide a basic quantitative description of a comprehensive summary of current systemic risk measures, while exploring individual measures in separate papers. It studies the correlation between financial shocks and the assessment of systemic risk measures with respect to a specific empirical criterion and determines the quality of these measures in predicting changes in the future distribution of financial shocks. It also identifies whether statistical dimension reduction techniques help discover a strong relationship between a large set of systemic risk measures and financial shocks. The study assumes there is no predictive ability for systemic risk measures to predict future financial shocks; in a group of banks within the banking sector in the Iraq Stock Exchange. According to the ARDL model, the study found no significant effect of the banking sector's return on the general index of the Iraq Stock Exchange. The research arrived at a set of conclusions, including Iraqi banks' exposure to financial shocks during the study period, with the Iraqi Al-Ahli Bank being one of the most affected by financial shocks, while the Kurdistan Bank is one of the least affected. The study recommended a set of recommendations, including banks' compliance with all liquidity and capital regulations, using a policy consistent with the disposal of non-performing debt, and reducing risks.