Tail Risk Contagion Effect And Systemic Importance Of Financial Institutions:From The Perspective Of Network

Since the global financial crisis occurred in 2008,the global economy has been in a period of adjustment and recovery with both tortuousness and vulnerability.The economic recovery foundation in developed economies is still not stable,the overall performance of emerging market economies is weak,and the future global economy is full of numerous uncertainties.With the acceleration of global economic integration,under the uncertain environment,the global financial markets show a close and significant linkage,and the interaction impact between markets is in an upward trend.The outbreak of many crisis events(such as the bankruptcy of Lehman Brothers,the European debt crisis and the huge losses of Deutsche Bank)have shown that systemically important financial institutions play an important role in the process of financial risk contagion in highly interacted financial systems,and have attracted the world's attention on systemic risk and the risk contagion effect among financial institutions.Maintaining financial stability and preventing systemic risk has become one of the major goals of the government's financial policies around the world.In response to the potential crisis,the principle of financial regulation has also shifted from micro-prudential to macro-prudential,while the identification and evaluation of systemically important financial institutions is crucial to the implementation of macro-prudential regulatory policies.For China,the current economic operation is confronted with many problems and contradictions,such as the sluggish economic growth,the accumulation of financial risks,the risk of local government debts,the risk of partial real estate bubbles,the decline of the quality of banking assets and the disorderly development of financial product innovation.Therefore,improving the ability of the financial system to cope with shocks,preventing the accumulation of systemic risk,reducing the structural vulnerability brought by the internal interaction of the financial system and guarding against the risks of important financial institutions in key markets have become the main objectives of current macro-prudential policies in China.Under the background of global economy and finance in long-term uncertainty,this paper aims to analyze the tail risk contagion effect and the identification and evaluation of systemically important financial institutions from the perspective of network.First,copula model is used to model the tail dependence structure of financial institutions,and their complex features such as asymmetry and time-varying are analyzed.Secondly,copula model is combined with complex network to construct a tail risk dependence network of financial institutions.By analyzing the overall characteristics of the network,the paper studies the tail risk contagion effect among financial institutions.Finally,from the individual characteristics of the tail risk dependence network of financial institutions,the measurement of the importance of network nodes and the identification and evaluation of systemically important institutional finance are explored.In view of the above problems,the main research contents and conclusions of this paper are as follows:The analysis of the return characteristics of financial institution stock shows that the financial time series have the characteristics of leptokurtosis,volatility clustering and skewness,which do not follow the normal distributions.Therefore,the traditional Pearson linear correlation is not suitable to measure the financial time series any more.In order to overcome the limitations of the linear correlation measurement,this paper constructs and analyzes the nonlinear structure under the copula model framework by focusing on the tail dependence among financial institutions.The results of static and dynamic tail dependence analysis show that for all pairs of financial institutions,the tail dependence is asymmetric and the lower tail dependence is higher than the upper tail dependence.Among them,the asymmetry between securities and insurance is lower,while the securities-trusts and banks-trusts tail dependences have higher asymmetry.In addition,tail dependence among financial institutions is time-varying.During the crisis period,the tail dependence of financial institutions is higher than that of non-crisis period.Based on the tail dependence between financial institutions,this paper constructs a tail risk dependence network of financial institutions.The analysis of the overall characteristics of the network shows that the tail risk dependence network of financial institutions has a "small-world phenomenon" and the "small-world phenomenon" is more obvious in the crisis period.Second,the interaction of tail risk between financial institutions is obvious time-varying,which is higher in the crisis period and declining in the post-crisis period.This result indicates that during the crisis period,there are more obvious tail risk contagion effect.Finally,during the crisis period,the related interactions of inner sector and cross sector of financial institutions are at a high level,indicating a high potential systemic risk.The tail risk between the banking sector and the insurance sector is more closely linked,while the tail risk between the securities sector and the trust sector is more closely linked.On the basis of the tail dependence matrix,this paper constructs the MST network and the PMFG network through the methods of MST and PMFG respectively.First,consistent with the conclusion from the threshold network,the results of the dynamic evolution of normalized lengths of MST network and PMFG network show that the interaction level of tail risk among financial institutions is higher during the crisis period,but declines in the post-crisis period.The fitting results of the degree distribution of network nodes show that the tail risk dependence network of financial institutions are not always scale-free.Different centrality indicators take into account the characteristics of the nodes from different perspective and there are differences between difference indicators.Therefore,it is necessary to propose a more comprehensive centrality measurement.Based on the tail risk dependence network of financial institutions,from the perspective of tail risk interaction,we evaluate the systemically importance of financial institutions and identify systemically important financial institutions.The evaluation and identification results show that the systemic risk supervision should not only pay attention to the risk that the financial institutions are "too big to fail",but also to the risk that the financial institutions are "too interconnected to fail".