| In the decade after the 2008 global financial crisis,extreme risk events occurred frequently around the world.From the “European debt crisis” in 2011,the abnormal volatility of China’s stock market in 2015 to China-US trade frictions in 2018,extreme risk events seem to have changed from “once in a hundred years” to “once in a few years”.While becoming more frequent and more normal,their impacts have also enhanced in both breadth and depth.As one of the important factors that induce systemic financial risks,tail risk is extremely destructive and can cause extreme market shocks and unexpected losses.How to measure,monitor and control tail extreme risk effectively has become an important issue in modern financial risk management.Besides the measurement of tail risk itself,further research on the risk correlation between the stock market and the financial system can help identify the path of risk transmission and diffusion,and effectively prevent the outbreak of systemic financial risk.At the same time,research on the relationship between the tail risk in the stock market and the macroeconomic basis will help investors and regulators to have comprehensive understanding of the generation,sources and contagion mechanism of tail risk.As China speeds up the capital market liberalization process,the impact from the international market and the risk contagion effect brought by the interconnection with other stock markets will profoundly affect the level of tail risks faced by the economy.Therefore,from the perspective of tail risk,this paper is devoted to comprehensively study the dynamic characteristics,the sources and the influences of the tail risk in China’s stock market,aiming to provide an important reference basis for the construction and improvement of China’s financial risk prevention system.Firstly,based on a brief review of the risk transmission mechanism within the financial system,the theoretical relationship between financial risk and macroeconomy,the influence mechanism of financial liberalization on financial risks and the crossborder contagion channels of financial risks,this paper applies Massacci(2017)’s time-varying peak-over-threshold model to measure the dynamic tail risk of China’s stock market,and analyzes the performance of the financial system,macroeconomy and the linkages among international stock market during the period of high tail risk.Secondly,combining the spillover index method proposed by Diebold and Yilmaz(2012,2014)and the rolling sample estimation technology,this paper builds a dynamic tail risk spillover model,and investigates the cross-level tail risk spillover effects among the financial markets and the financial sectors.The spillover effect of tail risk between the stock market and financial sectors is significant.The stock market is both the largest exporter and the largest recipient of tail risk in the system.It not only plays a vital role in the stability of the financial system,but also is significantly affected by all the other financial sectors.While the banking sector occupying the central position of tail risk spillover in the financial sectors,the influence of the multivariate financial sector is also gradually increasing,and it has the strongest two-way tail risk spillover effects with the stock market.Although the average spillover level of tail risks is limited,with the advance of market-oriented exchange rate reform,the transmission capacity of the foreign exchange market is gradually improving.Thirdly,this paper examines the dynamic tail risk spillover effect between China’s stock market and the macroeconomic system,in order to identify the economic factors driving the dynamics of tail risk.Empirical results show significant tail risk spillover effects among the stock market and the group of macroeconomic variables,and the total spillover index increases significantly during the crisis periods.The stock market is the net receiver of tail risk,and is significantly affected by the extreme changes of international crude oil price and the monetary policies,both of which constitute important sources of tail risk in China’s stock market.Economic policy uncertainty is the largest net exporter of tail risk in the system,and its spillover effect with the stock market is gradually increasing.The Shanghai-Hong Kong Stock Connect kicks off a new round of high-level opening-up in China and further strengthens the ties with the rest of the world.Taking the Shanghai composite index as the experimental group,other major global stock indexes as the control group,this paper applies the nonparametric panel data policy evaluation method proposed by Hsiao et al.(2012)to study the impact of the ShanghaiHong Kong Stock Connect on the overall tail risk level of stock market.In the short term,the Shanghai-Hong Kong Stock Connect improves the overall tail risk level of Shanghai stock market,and has heterogeneous effects on different types of stocks represented by SSE 180 index and SSE 380 index,which highlights the necessity of paying special attention to and preventing extreme risks in the process of capital market liberalization.On the contrary,as a developed capital market and international financial center,the tail risk level of Hong Kong’s stock market has significantly decreased after the launch of the Shanghai-Hong Kong Stock Connect.It is implied that the exertion of positive effects from capital market liberalization needs to be strongly supported by favorable institutional arrangements as well as market environment,and the experience from developed market is worth learning.Besides the effects from the financial system,macroeconomy or the political factors,the increased linkage with the international stock markets may also significantly affect the level of tail risk.Therefore,based on the dynamic tail risk spillover effect model,this paper studies the tail risk contagion effects among 10 important stock markets from 1997 to 2019.The tail risk contagion effect can on average account for more than half of the tail risks in the international stock markets,and is significantly enhanced during the crisis periods.The structure of tail risk contagion is also time-varying.The United States is the largest net exporter of tail risks in the sample range and one of the important sources of extreme risks in the international market.In contrast,the China’s mainland has the lowest level of two-way tail risk spillovers due to its relatively low degree of openness,and remains a net recipient of tail risk for the long term.With the process of capital market liberalization in recent years,the tail risk spillover ability of the mainland market has been significantly improved,and the gap between the output and the reception of tail risk has been narrowed.This not only reflects the improvement of the degree of internationalization,but also indicates the hidden dangers of risk linkage.It is worth noting that the outbreak of trade friction between China and the US in 2018 causes a sharp rise in the level of tail risk spillover from the US to the China’s mainland,even far exceeding that during the financial crisis,whose potential harm should not be underestimated.What’s more,the tail-risk contagion effect among international stock markets can be well explained by the economic basis theory and the market contagion theory,and is also related to the changes of economic policies in the US.Finally,this paper puts forward policy suggestions from the perspectives of perfecting tail risk measurement system,preventing risk resonance in financial system,coordinating economic and financial relations,insisting on the implementation of higher level of liberalization and preventing international risk contagion.In general,on the basis of effective measure of tail risk,this study is devoted to identify the factors driving the dynamic changes of tail risk,and assess its impacts.This not only helps to deepen the understanding of the source,transmission path and influence mechanism of tail risk,but also provides an important reference for improving China’s system for risk prevention and control. |
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