Mainshocks and aftershocks: Assessing the resilience of Asia-Pacific stock markets amid global financial cycle shocks

Abstract

This study introduces a quantitative framework to assess financial resilience and empirically examines the financial resilience of Asia-Pacific stock markets under the “mainshocks” of the global financial cycle. We further investigate whether financial resilience can mitigate the “aftershocks” generated by systemic risk spillovers. Our findings yield several key insights: First, Asia-Pacific stock markets are significantly influenced by global financial cycles, particularly during black swan events, leading to a marked decline in financial resilience. Second, these markets exhibit pronounced interconnectedness and risk spillovers, characterized by the diverse roles that different markets play in transmitting risk. Third, financial resilience reduces network risk spillover effects. Nodes with greater resilience in withstanding “mainshocks” experience fewer “aftershocks”, thereby mitigating spillovers across the system. Notably, this mitigating effect is most pronounced in the early stages with shorter convergence periods. Finally, our findings also underscore the importance of accounting for time effects when conducting resilience analyses across varying dimensions.