Research On The Internet Lendings Risk Contagion In China

The Core function of finance is pricing and trading economic risks in order to effectively allocate resources to maximize social utility.In recent years,Internet finance business innovate traditional financial functions in multiple dimensions of space and time.As an important part of the Internet financial innovation and a bottom-up financing way generated by the market,the development of Internet lending is far beyond many people’s expectations and imagination in the past few years.Of course,as all the other ways of financing and financial tools,Internet lending also has the risk of borrower defaults and the inability to repay principal and interest.There are the trade-off and alternative between benefits and risks.Development of Internet technology makes the financial assets have new risk characteristics,and the various types of capital with different risk characteristics reconfigure and re-combine in the financial markets which greatly changed the running mode of financial market and the performance of risk.Internet technology and Internet lending use their own unique way,making regional risk more easier spread to entire lending market,which even could rapidly spread to,infect and enlarged other types of financial markets,and result in expansion of regional risk and instability of the financial markets.This paper attempts to start at an analysis of the risk of Internet lending platform,aims at "The Defense of the risk of Internet lending platform,optimize network structure,strengthen risk immunity",follows the "theoretical framework-Situation Analysis-Mechanism Analysis-An Empirical Analysis-Strategies Option" research ideas,focuses on combining the theory with practice,and services with policymakers.Firstly,this paper concludes and analyses relevant theories on risk infection of Internet lending.According to available documents combined with China’s national conditions,we define risk infection and the risk infection of Internet lending.On this basis,the paper explains fully relevant theories on risk infection of Internet lending,including financial fragility theory,asymmetric information theory,collaborative risk theory,finance and network theory,network structure optimization theory,risk immune theory,etc.Secondly,this paper analyses mechanism of present development situation,risk condition and risk infection of China’s Internet lending market.The study found that China’s Internet lending platform not only acts as the role of information intermediaries,but also has business characteristics of credit intermediaries and funding channels,compared to the foreign Internet lending acting primarily as the media of exchange information.These characteristics make China’s Internet lending platform have higher risk.The risk of China’s Internet lending platform has universal,infectious,explosive and developmental characteristics.The main channel of risk infection of Internet lending includes funding channels,credit channels and the expected channels.The process of risk infection of Internet lending can be divided into process with media and process with no media according to whether there is a direct business connection between Internet lending platform and Internet lending platform and between Internet lending platform and financial institutions or not.Thirdly,this paper imitating the specific process of risk infection of China’s Internet lending.When not considering media,that is not considering financial institution acting as media,the paper analyses risk infection behaviors which directly rely on business connection between Internet lending platform and institutions.At the same time,when considering media,that is risk infection behavior relies on financial institution as media,the paper mainly discusses the process of risk infection between Internet lending platform and Internet lending platform and between Internet lending platform and financial institution relying on no business connection.The study show that the increasing number of business related individual on Internet lending will reduce the possibility of risk infection when there is no media.When the possibility of risk infection is different,the marginal density of "unhealthy" transactions is also different.On condition that delay time of infection is fixed,the possibility of risk infection between Internet lending market and financial institution based on business connection will be higher,and the number of "unhealthy" lending platform and relevant financial institution will be increase.However,when there is media,without considering delay time of risk infection,the media of risk infection on network structure will increase the risk of risk infection of entire network system.When considering delay time of risk infection,time-delay effect of risk infection will increase the risk of risk infection of entire network system by means of the same media.Comparing considering separately delay time of risk infection and considering separately infection media,the possibility impact that both condition superimposed has on risk infection of the entire network system is more obvious.Next,the paper analyses empirically the effect of risk infection of China’s Internet lending.Taking risk infection between Internet lending platform and traditional financial institutions as an example,we builds EGARCH-COPULA-GPD model to analyze the degree of dependence of China’s Internet lending.At the same time,combining C rattan-COPULA function and MARKOV Regime-switching Model,we discusses dependence structure of risk of China’s Internet lending market and traditional financial market and situation of risk infection when considering structure switch.The research show that the risk of Internet lending platform is easily transferred to traditional commercial bank compared to other institutions.And at the corresponding confidence level,under the tail losses were higher on the tail earnings.It indicates that severe decline of composite interest rate on Internet lending platform caused by extreme events will trigger more intense reaction on market index and the banking index gains.Its impact far more than the corresponding market while rising.China’s Internet lending market and relevant traditional financial market has obvious district conversion feature.The composite interest rate of China’s Internet lending downward undulate longer than upward undulate,and the gap is clear.During China’s Internet lending market gradually mature,market fluctuations gradually reduced,and the effect of risk infection which Internet lending has on commercial bank is greater than the other traditional financial institutions,followed by the effect of risk infection which Internet lending has on trust business.Comparing the combination of the various stages in different situations,we can see that the effect of risk infection which Internet lending has on commercial bank is large in the first stage,the second stage has been reduced,and the third is largest stage.Finally,the paper makes conclusions from theoretical analysis,simulation and empirical analysis.This paper aims at preventing risk infection of China’s Internet lending platform,optimizing network structure and strengthening immunity of risk,and proposes the measures and suggestion from clearing regulatory principles of Internet lending market,further strengthening risk prevention and improving the risk infection immune system.