The Tail Dependence Measure Of Systemic Risk In China's Financial Industry

The purpose of this study is to study the tail dependence of the financial institutions with systemic importance,to compare the impulse-response functions to a shock to the market and to the financial institutions in different regions and types,as well as to make a conclusion from the analysis about entire financial system.Financial policy makers can consider these results as references for economic policy adjustment,and also financial investors can understand the systemic risks of Chinese financial system in order to maximize the benefits of investment.At present,the majority of domestic scholars are focus on the tail dependence of the Chinese stock market and some specific financial institutions' tail risks.In this paper,the multivariate and multiple quantile regression VAR for Va R model is adopted in Chinese financial industry,instead of copula function commonly used in the study of tail risk.This theory can simultaneously correlate the model with multiple random variables,multi-position confidence levels,and lags of associated quantiles.The 181 financial institutions in mainland China,Hong Kong and Taiwan are the object of study,including three main global sub-indices: banks,financial services,and insurances.We collected their daily closing prices from 2009 to 2017 and transformed the data into continuously compounded log returns.Then we constructed bivariate quantile regression models,got the result of P value,estimated the corresponding coefficients of the models and its standard deviations,and analyzed the tail dependence.Furthermore,the impulse-response functions to a shock to the market and to the financial institutions in three major regional and in three kinds of financial institutions,as well as the specific financial institutions' reaction as well as market's reaction under the standard deviation shock.At last,the DQ test was used to verify VAR model's rationality through out-of-sample data.The main results we found in this study are as follows: Fristly,the financial institutions with the importance of the system has significant self-correlation with the entire financial system risk change process.The mainland has the greatest spillover effect,while Taiwan has the biggest tail risk spillover value and greatest tail risk impact on whole market.Secondly,there are regional differences in the risk of China's financial industry system.Financial institutions in the three major regions have a reverse impact on the market at an early stage,then the impact tends to zero,and also its impact on its own has lag value.Hong Kong financial institutions have a most huge influence on the entire financial system,compared to the mainland and Taiwan,.Thirdly,different types of financial institutions have different effects on the risk of China's financial industry.The multi-financial institutions have the greatest impact on the market at the beginning,followed by insurance,and finally the banks which have a longest time impact on the market.However,the trends of different types of financial institutions on their own are similar.Fourthly,the financial institutions with high market value and high asset-liability ratio have a lag effect on the whole system risk of the financial industry,and the negative impact in the early stage is less than their counterparts with smaller market capitalization and lower asset-liability ratio.However,on average,the risk of the former is higher than the latter's.Finally,the risk of financial institutions will change with the logarithmic yield fluctuation,in which the risk value will change remarkably during the market turmoil.