Modeling the Liquidity Risk Spillover Between Banks Accepted in the Tehran Stock Exchange Market

The analysis and examination of the spillover of risks among markets has been emphasized in practice for some decades by the theorists and scholars from different fields. The complex atmosphere of the financial markets and the close relationship between these markets and also the necessity of predicting the future economic changes prompted the financial researchers to take an effective step to attain the goals of the financial and economic system by discovering and analyzing the relationships between those markets. Identifying the financial risks in banking industry and the way they are transferred among different banks is one of the main financial issues that has a significant role in realizing the risk management of the financial institutes and banks. The present research was conducted to examine the spillover of one of the financial risks (liquidity risk) among the banks listed on Tehran Stock Exchange. The liquidity adjusted Value-at-Risk (LaVaR) has been used to evaluate the liquidity risk and the required data has been gathered from 8 banks listed on Tehran Stock Exchange on daily basis from 2011 to Sep. 2020. The method of spillover of the risks to each other has been modeled based on GARCH-DCC model. All obtained coefficients had a significant difference with zero in the estimated model and at 95% confidence level, and the estimated variance equation indicate the existence of spillover of liquidity risk as mutual among the banks