A CoVaR Research On Spillover Effect Of Systemic Financial Risk Between Financial Sub-sectors

Study of systemic financial risk has always been a hot issue in the theory circle and practical realm. Many scholars explore this topic from different angles such as single risk measure in financial markets, the impact of financial risk on the real economy as well as macro prudential supervision of systemic financial risk. However, most of the literatures and researches study the risk in financial system as a whole; it is also the reason why the study of risk transmission mechanism in the financial system is still very deficient. Currently, with the trend of financial markets integration, China’s the financial institutions and markets are gradually progressing to mixed operation from separate operation. In this case, the risk in a single or part of the financial institutions could quickly spread to the whole financial market through various channels. That is to say, systemic risk could be caused by risk spillover effect. At present, banking, securities and insurance industries are the most common mixed financial sub-sectors of china, playing an important role in the national economy. To study the risk of financial sub-sector spillover effects between each other can not only contribute to research transmission mechanism of systemic financial risks in the financial system, but also be beneficial in the monitoring, tracking and prevention of the generation and transduction of systemic risk, filling the gaps in this theory research field and providing a reference for the macro-prudential supervision of the systemic financial risks.This paper first reviews the theoretical basis of the relevant literature and research systemic financial risks at home and abroad. Followed by the general to the particular logical relationship, this paper studies the risk spillover of the banking, securities and insurance specifically following the logical relationship of general to particular. Based on the theoretical analysis, combining the characteristics of the system spillovers between financial sub-sectors, this paper builds two analysis models, CoVaR and R-CoVaR, to empirical analysis the risk spillover effect under different levels from the static and dynamic dimensions. The results show that:(1) Different from the VaR model, the CoVaR model is more fully reflecting the risks faced by financial institutions;(2) The risk of spillover effects between financial sub-sectors changes regularly in the direction and the extent in different economic situations;(3) The degree of the risk spillover effects of the financial sub-sectors is positive correlatively with the economic prosperity. All of these provide an amount of references for the construction of systemic risk warning system and the prevention of the systemic financial-risks.