FRM@Taiwan is designed to capture the systemic risk dynamics within Taiwan’s high-cap electronics and financial sectors. It focuses on the top 20 companies by market capitalization within each sector, traded on the Taiwan Stock Exchange.

By analyzing the adjacency matrix, FRM@Taiwan provides insights into the network dynamics, identifying key players so called high co-stress company and their interrelations within these critical sectors.

Details:

We propose a linear lasso measure to estimate systemic interconnectedness across financial institutions based on tail-driven spill-over effects in an ultra-high dimensional framework. Methodologically, we employ a variable selection technique in a time series setting for a linear quantile regression framework with 5% quantile. We can thus include more financial institutions into the analysis, to measure their interdependencies in the distribution tails.

Then FRM is induced from this model which is the averaged tuning parameter lambda from the lasso technique.

Risk Levels Explained

Red: severe risk of a crisis in the financial market. Our risk measure suggests that a financial crisis is imminent or happening right now. This risk level is given for lambda values higher than the 80%-ratio.

Orange: high risk of crisis in the financial market. A crisis might occur very soon. This risk level is given for lambda values between the 60%-ratio and 80%-ratio.

Yellow: elevated risk of crisis in the financial market. The incidence of a crisis is somewhat higher than usual. This risk level is given for lambda values between the 40%-ratio and 60%-ratio.

Blue: general risk of crisis in the financial market. There is no specific risk of a crisis. This risk level is given for lambda values between the 20%-ratio and 40%-ratio.

Green: low risk of crisis in the financial market. The incidence of a crisis is less likely than usual. This risk level is given for lambda values lower then the 20%-ratio.

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