An Empirical Study On Systemic Risk And Internal Connectedness Of A-share Market

The rapid collapse of the A-share market in mid-June 2015 has forced Chinese academics to re-learn the systemic risks of the A-share market.Systemic risk analysis now has been widely applied to the analysis of the crisis in many industries,even so,the precise definition of systemic risk is still difficult to grasp,and many systemic risk events are only qualitative after the incident,obviously,this could not be a precise definition of systemic risk.With the increasing complexity between A-share market and the companies,market crisis spreads faster and faster among different organizations.Therefore,it is especially important to grasp the systematic risk of A-share market accurately.Based on principal-components analysis(PCA)and Granger-causality networks,this paper proposes several econometric methods to measure the connectedness of A-share market,and apply these methods to the volatility of intraday returns of banking,diversified finance,energy and materials.The original data used in this paper is the 5 minutes returns of the stocks we choose.Our study found that the four different industries began to become highly correlated at the time of the stock market crash,and this is likely to raise the systemic risk level of the A-share market through a complex and time-varying network of relationships.These methods can identify the different time period of the stock market crash and seem to contain some kind of forecast information.The results of this study show an asymmetry in the degree of connectedness among the four industries.For example,in our PCA test,the contribution of banks,diversified finance and energy to the first principal component will increase during the period of stock market crash while banks will play a more important role in delivering market shocks in our Granger-causality test.