FINANCIAL RISKS AND STOCK MARKET CRASHES: AN EMPIRICAL ANALYSIS OF THE TUNISIAN STOCK MARKET
This study aims to investigate the effect of financial risks on the stock market crashes occurrence from 1999 to 2020. Using the windows method, we detect two stock market crises in the Tunisian stock market. Based on the probit model, we find evidence that low stock return risk, low EUR/TND exchange rate risk, high interest rate risk, high credit risk and high liquidity risk increase the occurrence probability of stock market crashes. Our results suggest that the decrease in volatility, particularly in equity and exchange market, the increase in volatility in interest rate, the credit rating downgrades issued by Moody’s and the low liquidity market contribute to crashes in the Tunisian stock market. In summary, financial risks, which are the market risks, the credit risk and the liquidity risk could be leading indicators of crashes in the Tunisian stock market.
Keywords: Stock market crashes; Liquidity risk; Credit risk; Market risks.
Copyright (c) 2021 Haifa Hammami, Younes Boujelbene
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Authors submitting articles for publication warrant that the work is not an infringement of any existing copyright and will indemnify the publisher against any breach of such warranty. By publishing in Applied Finance Letters, the author(s) retain copyright but agree to the dissemination of their work through Applied Finance Letters.
By publishing in Applied Finance Letters, the authors grant the Journal a Creative Commons nonexclusive worldwide license (CC-BY-NC-ND: Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License) for electronic dissemination of the article via the Internet, and, a nonexclusive right to license others to reproduce, republish, transmit, and distribute the content of the journal. The authors grant the Journal the right to transfer content (without changing it), to any medium or format necessary for the purpose of preservation.
Authors agree that the Journal will not be liable for any damages, costs, or losses whatsoever arising in any circumstances from its services, including damages arising from the breakdown of technology and difficulties with access.