Network Effect Analysis Of Risk Contagion In China’s Financial Markets

In recent years,with the acceleration of economic globalization and financial liberalization,the correlation within the financial market is also gradually increasing,and the linkage of financial market prices is closer than ever before.Financial markets have many branches,and their sub markets do not exist independently.The contagion effect between financial markets refers to the effect of changes in other markets caused by changes in one sub market in the financial market.In order to describe the path characteristics of risk contagion in China’s financial market,this paper uses VAR model and variance decomposition network to construct a complex network of information spillover,and analyzes the characteristics of risk contagion within the financial system from the perspective of network.At present,there is cross correlation between various economic risks,and the Risk Spillover Effect of financial market has also attracted extensive attention.Therefore,this paper selects departments in China’s financial industry as the research object to study the risk contagion effect between financial departments from the perspective of Risk Spillover and dynamic correlation,So as to improve the accuracy of financial market decision-making and reduce decision-making risk.Firstly,we use VAR model method to study the Risk Spillover relationship among the financial sectors,then use its generalized variance decomposition method to construct the static correlation matrix between various sectors,and determine the correlation direction and intensity of various sectors.Finally,we use the rolling window prediction method to calculate the dynamic correlation between various sectors of the financial market,So as to depict the risk infection network path between departments.The results show that there is a significant correlation between China’s financial sectors;Some extreme events of exogenous shocks can strengthen the linkage between China’s financial sectors;The path characteristics of financial risk contagion network are more complex.Among them,diversified bank index,regional bank index and insurance index departments are in the central position,while other departments are in the marginal position.The above research conclusions can better help understand the risk infection mechanism between China’s financial systems,which is of great significance for regulators to strengthen macro prudential supervision and investors to avoid investment risks.