A Covar Research On Spillover Of Financial Risk

Study problem of financial risk has been a hot issue， however， riskmeasurement technology,as the key part of studying financial risk, is primarilyaround the risk of individual financial institutions or markets and relatively backward.At present, with the trend of financial markets integration, China’s the financialinstitutions or markets are gradually from separate operation to mixed operation. Inthis case, a single or part of the financial institutions in risk could quickly spread tothe whole financial market through various channels. That is to say, systemic riskcould be caused by risk spillover effect. banking and securities is one of the mostcommon mixed operation, which plays an important role in the national economy, andresearch the relationship between the two risk is of great significance. VaR model,which is widely used, has played an important role in measuring financial risk, but itdoes not capture the systemic risk. The newly developed CoVaR model is better toovercome the defects. CoVaR, considering the risk of financial institutions on thewhole system,is a more effective method that measuring the crisis faced by theagency itself. It is also advantageous for the financial regulators to monitor thechanges of risk timely. The research on spillover of financial risk is essential tofinancial institutions, financial markets and financial regulator.This paper elaborates the research situation on financial risk, clarifying thedevelopment of it, establishing the basis of this paper. And then follows the procedurefrom general to specific one, on the basis of discussing the theoretical of the financialrisk, studies the risk of banking and securities and the spillover risk between themspecifically. In the empirical part, it estimates the value of the risk and the spillovereffect, This study shows the advantage the CoVaR model than VaR model inestimating risk of financial institutions facing. There is a positive two-way riskspillovers between banking and securities, however, the impact between them areasymmetry. Banking spillover effects on the securities is far stronger than the risk ofthe securities. Also find the banking spillover enhances with quantile decreasing.Lastly, is the conclusion and policy recommendations and relevant regulatorydepartments should strengthen the prudential supervision of financial institutions.