Research On The Spillover Effect Of Systemic Financial Risk In China

In 2008,the US subprime crisis led to the global financial crisis.The crisis has exposed the lack of regulation of systemic financial risk.In the post-financial crisis era,China’s economic recovery has been obvious,but there also have been some problems,such as rising leverage and the accumulation of financial risk.Driven by the concept of financial innovation,China’s financial sector is developing rapidly.However,due to the negative externality and infectivity of financial risk,the spillover effect of systemic financial risk in China’s financial system is obvious under the background of insufficient supervision and control.Therefore,the prevention of systemic financial risk should be the focus of our government and financial regulatory departments.In the process of preventing systemic financial risk,we should pay attention to the spillover effect of systemic financial risk.This paper draws on the methods of Brownlees and Engle(2017)and Adrian and Brunnermier(2016).Marginal expected loss(MES)and conditional value at risk(CoVaR)are taken as the theoretical basis.This paper starts from the dimensions of institution and market.By using the data of China’s financial institutions,financial industries and financial markets,this paper conducts an empirical study and test on the spillover effect of systemic financial risk through the DCC-GARCH model.From the dimension of institution,losses of one financial institution will negatively impact other relevant institutions,industries and even the entire financial system because of the negative externality of risk.The risk spillover effect is obvious.Therefore,it is necessary to correctly identify the risk spillover effect of financial institutions and make early warning and timely correction.From the dimension of market,the highly correlated financial markets and the contagious characteristics of risk will lead to obvious risk spillover effect in financial markets,which will easily lead to the spread and diffusion of potential systemic financial risk.Therefore,it is necessary to correctly evaluate the spillover effect of risk in financial markets,and to dredge and weaken them.The research results show that: DCC-GARCH model well describes the volatility and dynamic correlation of financial time series in China and can be used to evaluate the systemic financial risk in our country.From the dimension of institution,banking institutions have the largest risk spillover effect.The risk spillover effect is not invariable and will constantly change dynamically with the external environmentand their own operating conditions.From the dimension of market,each financial industry has a great dynamic volatility and a high dynamic correlation with each other.In terms of the risk spillover effect,securities industry has the largest marginal risk spillover to other industries,followed by insurance industry,and banking industry has the least marginal risk spillover to other industries.According to the research conclusions and in combination with China’s actual national conditions,this paper puts forward some targeted policy suggestions,such as guiding the financial sector to appropriately allocate leverage,establishing a risk monitoring and warning mechanism,channelling and weakening the spillover of risk,and establishing a regulatory system combining macro-prudential supervision with micro-prudential supervision.