Study On The Construction And Application Of The Financial Crisis Warning Index

Financial risk is a core problem of modern finance, which is not only related tothe national financial security, but also related to the vital interests of each individualand enterprise. Especially in recent years, the outbreak of the American subprimemortgage crisis and the European debt crisis, have aroused extensive concern ofscholars on the financial risk. Meanwhile, it’s of essential significance to establishfinancial crisis warning index,and apply it to study evolution characteristics, spatialcorrelation characteristics, influencing factors and prediction of China’s financialcrisis.First of all, this paper studies the basic theory of the early warning of financialcrisis. On the basis of sorting relevant study on the financial crisis, it divides theexisting literature into two categories: the study on the early warning model and thestudy on the index system of the early warning, and then puts forwards the concept ofthe financial crisis warning index. After evaluation of the existing literature, the maincontent and methods, train of thoughts and framework of the research are proposed.First, it defines the two important concepts of financial risk and financial crisis, andexplains the relationship between them. On this basis, the early warning of financialrisk has been established as the core content of this paper, and it puts forward theconcept of alarm index as a starting point for the study of early warning of financialrisk. Then, it systematically compares typical theories on financial crisis in the pasttwenty years in terms of occurrence time, the fuse and reasons, describes formationmechanism of current financial crisis, and generalizes the formation mechanism of thefinancial crisis in china. Finally, it builds the framework of the early warning offinancial crisis, based on historical evolution.Secondly, this paper puts forward the theory of early warning of the financialcrisis which is based on financial crisis warning alarm index. First it makes acomprehensive comparison and evaluation in existing financial crisis early warningmodels from the view of basic theory, statistical method and model adaptation, selectsalternative indicators from four aspects of financial institutions, government sector,non-financial corporate sector and external indicators, and uses structural equationmodel to confirm indicators sensitive to financial risk. After standardizing thecollected data and calculating the delay of early warning indicators of financial crisis,the financial crisis warning index is acquired through weighted synthesis of four weighing methods involving the variation coefficient, entropy, correlation coefficientand CRITI, besides, its statistical characteristics has been briefly analyzed.Furthermore, the financial crisis warning index is applied in analysizing thefinancial risk of China from July2002to December2012from three angles of timedimension, space dimension and the influence factors. In time dimension, this papersystematically describes the time evolution characteristics of the financial cisiswarning index from three aspects of its basic statistical characteristics, trendcharacteristic and periodical characteristics. Study shows, from July in2002toDecember in2012, China’s financial risk presented obvious trend characteristics. TheFebruary in2007was the turning point, in which, China’s financial risk early warningalarm index increased at first and then decreased. Further study using clusteringordered samples shows that, in the study period, China’s financial risk early warningalarm index can be obviously divided into four stages, namely, stable stage(July2002to February2006), ascendant stage(March2006to July2007), sustained high stage(August2007to August2011)and descendant stage(September2011to December2012).In space dimension, in the view of the financial risk contagion effect and thefinancial crisis environment of China, this paper clarifies the necessity andimportance of study on financial risk warning spatial correlation, and constructs thegrey correlation model. The grey correlation of the financial risk between China andthe major economies like the United States, Germany, Britain and Japan is calculatedfrom two aspects of exchange rate and stock index in four stages, and the results areanalyzed. The results show that, in the asepect of stock index, there is no significantregional discrepanies in the gray correlation of the financial crisis between the abovefour countries and China, but there are obvious periodical difference in each of thefour countries. As for the exchange rate, the gray corrcletion between China’swarning index and the exchage rate of euro against the dollar is weaker than that inother three countries,in addition, all those four countries show obvious periodicaldifference. A state space model is used to analysis the factors influencing the financialcrisis warning index. Factor analysis on these factors shows that, three factors,thetotal credit, government deficits and the CPI, have a significant influence on financialrisk early warning alarm index, and influence is different at different stages, in somespecial stages showing directional differences.Finally, the established financial crisis early warning theory is applied, alongwith the use of GM (1,1) model and the state space model, respectively, in the view of point prediction and interval prediction, to predict China’s recent financial risk earlywarning alarm index, and the prediction results are analyzed.At the end of the article,based on the theory presented in this paper, according to the current situation in China,measures and suggestions on financial risk prevention and solution are put forward.Meanwhile, a summary and expectation on the study subject are presented.