An Empirical Analysis Of Systemically Important Financial Market In The European Sovereign Debt Crisis

The outbreak of US Subprime Crisis and the continuous fermentation of European Sovereign Debt Crisis, expose regulatory gaps, and highlight the problem of systemic risk in financial markets. It is a inevitable choice to strengthen macro-prudential supervision based on systemic risk. Furthermore, the recognition of these systemically important financial institutions or financial markets is the premise and foundation of preventing systemic risk and strengthening supervision. Based on the above background, this paper investigates the risk connectivity and the risk contribution of these systemically important financial markets in the European Sovereign Debt Crisis.Starting from the view of systemically important financial markets, this paper constructs the indexes of systemic risk contribution by CoVaR and Shapley value method, respectively from risk spillovers and risk allocation perspectives, to analyze the regularity of euro area financial markets’risk, so as to explore the roles of the euro zone countries during the crisis. Empirical evidence shows that, on the one hand, the more serious affected by the crisis, the stronger of risk connectivity and larger of systemic risk contribution contributed by the countries, and the risk contribution gradually increase with the time. These countries also vulnerable to shocks from the risk of system market. On the other hand, the countries less affected by the crisis have played a stabilizing role in the system.We also found, compared to the stock market, the risk contribution of the bond market has an extreme phenomenon. With the evolution of the crisis, the financial market of Germany and France slowly played a stabilizing role in the system. Therefore, it needs to carry out from a dynamic perspective for the regulation of systemically important financial markets, In addition, the degree of contribution to the systemic risk has no significant linear relationship with the size or the risk condition of a single market. It suggests that VaR as the core regulatory indicators cannot effectively prevent systemic risk premium. Financial regulators should manage systemic risk in different ways according to the financial market’s contribution to systemic risk, to ensure the stability and security of the whole financial system.It should take corresponding rescue strategies for different countries, based on the specific reasons. Bailout the domestic economic problems countries, like Greece and Portugal, the fundamental measure is to stimulate their domestic economy and reduce unemployment rate. While for other countries because of crisis contagion, like Italy and Spain, need to restore market confidence and reduce their financing cost.In a word, the transmission of risk studied in this paper, is a kind of systemic risk conduction. The systemic risk contribution degree index in this paper, provides a new perspective to accurately judge the importance of a single market, to set up the macroeconomic regulatory system, and to prevent systemic risk.