The Study Of Risk Stress And Early Warning Index System In China’s Stock Market

As the process of economic globalization is accelerating,the global financial markets have also become more complex and volatile,on which stage the opportunities and challenges exist at the same time.On the one hand,the financial products and system develop and improve rapidly,on the other hand,the co-movement and destructiveness of financial crisis are increasing.China’s financial market is still in a very early stage,it hasn’t been well-developed enough to resist those risks by itself,so we need to keep monitoring and prevent the risk in advance.The stock market is called"the barometer of the national economy",it’s characteristics which high risk makes high return makes it stands out during the financial crisis.So,it’s urgent to select effective indicators to establish risk early-warning system,by which way we can monitor and analyze the risk of stock market.This paper focuses on the construction of China’s stock market stress index and early warning index system.Firstly,on the basis of previous researches,we summarize and elaborate the definition、identification methods and risk warning methods of stock market risk.Secondly,we analyze the factors of the market risk and select specific indicators that may be associated with the risk.Thirdly,we establish the stock market stress index based on the historical data of China’s stock market,the stock market risk early-warning index is selected according to the stress index.Finally,the stock market risk factors of 2006-2016 were identified through the factor analysis.This paper measures the degree of the stock market risk by constructing the pressure index.In the stock market,"volatility equals to risk",so the stock market risk quantification is mainly depending on the modeling of volatility.Through the study of stock index yield,we build the ARMA-EGARCH model which fits the daily fluctuation of the stock index well.Then we use the PriceChangeRatio as the other component together with the volatility to make the weighted sum after standardization,the outcome is the market stress index——S.From the chart of stress index,it is consistent with the historical crisis of China’s stock market.The following screening and analysis of early-warning indicators are based on the stock market stress index.We screen out the warning indicators that have a causal relationship with the stress index by ADF-test and Granger-test,then,four common factors were extracted by factor analysis.These common factors respectively represent the operation situation of stock market,forecast of economic trend,foreign economic environment and financial institution security.This stock market risk early-warning index system constructing by factor analysis can reflect the real risk situation,and when we apply the historical data into the model,we can know which factor influences the stock market most greatly.Through the study,we found that the comprehensive score of China’s early-warning indicator factors was higher in 2007,2008 and 2015,which means that thestock market contains more risks.In 2007,the investment overheating made "false prosperity" in the stock market,at the same time,China’s loose macroeconomic policies have greatly expanded credit markets,which increase the bank credit risk.In 2008,in the background of the economic crisis,the deterioration of macroeconomic situation and the negative mentality of investors increased the risk of China’s stock market.The stock market turmoil in 2015 was largely due to the contradiction between the investors’excessive expectations of economic transformation reform and the unsatisfactory short-term economic performance.High expectations have led to frenzied investment and of course,another market bubble.By putting the predictive value of each indicator into the stock market risk warning model——Logit,we know that the overall risk of Chinese stock market declines in 2017,in a safer area.At the same time,it is similar to the actual tendency of the stock market stress index in 2017,so the established model and the early warning indicators are effective.By comparing the indicators,we found that the most effective indicators of China’s risk early-warning indicators are the trading indexes of the market.Our stock market is not stable and most investors have short investment strategies.serious speculation and strong psychological effect,they are all important causes of the stock market risk.Therefore,some indicators which are related to stock market trading(such as turnover rate,p/e ratio,turnover rate,etc.)have high sensibility and strong predictability,we can prevent the market operation risk effectively if we monitor these indicators in real time.