Research On The Dependence In China’s Financial System

Finance is the core of modern economy,prosperous and stable financial markets,high-quality financial market participants and standardized financial operation mechanism are not only the basis for building a good financial system,but also an important guarantee and supporting force for the healthy development of economy.Financial markets and financial institutions together constitute the two elements of the financial system,accurately describing and mastering their dependence has important theoretical and prac tical significance.On the one hand,it is helpful for investors to understand the financial market structure and make the plan of the reasonable investment strategies;On the other hand,it is also conducive to financial market regulators to control marke t risks and formulate effective market policies.At present,complex network is often used to describe the network structure because of its visualization advantages,while entropy theory is widely used in the research of time series because of its data-driven and suitable for nonlinear conditions.Therefore,this paper takes the complex network as the research perspective,takes the mutual information and transfer entropy as the main research methods,and explores the c haracteristics of the dependence relationship in China’s financial system.On the overall framework of China’s financial system,the mutual information method is used to construct the dependenc e relationship network between various elements of the financial system,the sliding window method is used to investigate the dynamic evolution of the dependenc e relationship between each element and other elements,and the concept of spatial hierarchica l heterogeneity is introduced,the hierarchical nature and core structure of the dependence relationship between elements are described by combining geographic detector and maximum spanning tree.It is found that the dependence between the elements of the financial system has obvious characteristics of stratification heterogeneity;The dependence between th e stock market and other elements is the closest,and the node strength of financial institutions in the dependence network is generally strong,which paves the way for the next parts to focus on the stock market and financial institutions;In addition,the dependence between the elements of the financial system increases rapidly and fluctuates violently under the China’s stock market turbulence scenario and the COVID-19 scenario,which provides a basis for the selection of research scenarios in the next parts.According to the above research findings,the research further focuses on the stock market and financial institutions in the two scenarios,and classify the stock market according to the industry of the listed company.At the same time,the above two scenarios are divided into different stages ac cording to the actual situation.Using the methods of mutual information and transfer entropy,and combined with the maximum spanning tree,the research explores the directed and undirected dependence structure between financial institutions and real economy sectors in different scenarios,extract ing common characteristics and avoiding the occurrence of accidental results in a single scenario research,investigates the weighted betweeness centrality of each sector in different stages,and explores the process of information transmission between sectors.The study finds that: in the period of large fluctuations in economic and social conditions,the dependence and the information transmission effect between the fi nancial institution sectors and the real economy sectors increase significantly,and at this time,the intermediary node role of information transmission in the financial institution sectors begins to strengthen,which paves the way for the next part to focus on the financial institution sectors.The following research focuses on the financial institutions.In order to more comprehensively describe the daily market characteristics of each financial institution,this research uses the daily opening price,closing price,highest price and lowest price to construct the volatility index of the financial institution sectors,and uses the method of mutual information to explore the risk dependence network and its characteristics in the different stages of the two scenarios,at the same time,the maximum spanning tree method is used to investigate the core structure and the change characteristics of risk dependence.It is found that there is always a strong risk dependence among banking financial sectors;In the tranquil period,the stratification of risk dependence between banking and non-banking financial sectors is significant,while when the economic and social state enters the fluctuation period,the state of relative separation of risk dependence between the tw o types of sectors is broken,and the insurance sector becomes the intermediary of risk dependence between the two types of sectors;Under the China’s stock market turbulence scenario and the COVID-19 scenario,state-owned banks and city commercial banks h ave the strongest node strength respectively,and maintain the strongest risk dependence with national shareholding banks respectively,which is related to the nature and role of these two types of banks in different scenarios.Finally,this paper proposes a method to judge the importance of financial institutions based on Mutual Information-Transfer Entropy-Page Rank Algorithm.On the basis of data-driven,this method combines the directional and undirected dependence between financial institutions,avoids the discrimination error caused by parameter setting,reveals the ranking and changes of the importance of financial institutions in different stages of economic and social development,and further enriches and expands the identification method s of the importance of financial institutions.The study finds that: In the ranking of financial institutions,the importance of state-owned banks has always been in the forefront;In the bull period,the importance ranking of securities companies are improved;In the turbulence period and epidemic period,the importance ranking of insurance financial institutions increased significantly.This study focuses on the dependence relationship in China’s financial system,analyzes the similarities and differences of the dependence relationship network and structure between the main elements of the financial system in different scenarios,ranks the importance of financial institutions,and investigates the changes of the ranking in different stages under different scenarios.This study provides a basis for the financial supervision department to make or adjust more targeted scientific decisions under different negative shocks according to the characteristics of the dependenc e structure of the financial system and the change of the importance of financial institutions.