Assessing Financial Stress in China and ASEAN-4 Economies

HRMARS - The significant economic effects of multiple financial crises have necessitated the development of tools for measuring financial stress. This study constructed financial stress indices for four sub-markets — banking, bonds, stocks, and foreign exchange —and for China and the ASEAN-4 economies (Malaysia, Singapore, the Philippines, and Indonesia) from November 2006 to February 2024. The methodology primarily employed a dynamic CRITIC weighting method to analyze and integrate eight indicators across four sub-markets and compare it with the traditional static methods. This proposed model can consistently capture the correlation among submarkets. This feature is particularly important during a crisis, as banks and foreign-exchange risks often become more closely intertwined, making the index more suitable for emerging markets. In addition, it conducted a comparative analysis of financial stress dynamics between China and the four ASEAN countries over 18 years, revealing distinct risk characteristics: the evolution of stress in China is relatively smooth, whereas that in ASEAN economies is more sensitive to global capital flows and liquidity shocks. The empirical results demonstrate that dynamic weighting is an alternative tool for tracking financial stress during periods of heightened market turbulence.