Analyzing The Systemic Risk In China Securities Market With CoVaR Method

Systemic risk in securities market has the characters of wide spreading, rapidtravelling and deep influencing. Once systemic risk occurs, the whole securitiessystem will come across huge losses, and affect the real economy. As an emergingmarket, China securities market has a simple structure and weak anti-risk ability, inthe event of systemic risk there may be serious consequences. To investigate themechanism of the internal and external factors acting on the systemic risk in Chinasecurities market, this article select stock market as a representative, empiricallyanalyzes this problem.First, using daily closing data of stock indexes of America, England, German,French, Japan, Korea, Hong Kong and Taiwan from2005to2012as therepresentative of the market condition, using CSI300as the representative of Chinasecurities market, this article makes an empirical analysis with CoVaR method. Theresult shows that in the long run the stock market of all countries and regions has acertain degree of influence on China stock market, the Asian markets which havecloser geopolitical relations with China stock market influence have greater impactthan European and American markets, the spread of systemic risk needs time, cantransfer indirectly through interconnected markets and might be amplified in theprocess of indirect transfer. And the influence degree of all countries and regions onthe systemic risk in China stock market is constantly changing over time.Second, this article uses daily closing data of CSI300index and CSI300industryindex as the representative of China stock market and each industry sector, alsoemploys the CoVaR method for the empirical study. The result shows that everyindustry sector contributes to the whole stock market’s systemic risk, the degree of theimpact changes over time for each sector, the sector with a large VaR might notnecessarily have a big impact on the overall stock market’s systemic risk, but thesector with a small VaR might have a big impact on the overall stock market’ssystemic risk.