Risk Measurement And Risk Spillover Effect Analysis Of Internet Finance In China

Internet finance is a new form of industry that comes into being after the integration of financial industry into Internet information technology.It develops rapidly relying on high efficiency and low threshold,which is quite different from traditional financial industry.But behind the rapid development,the risks and risk spillover effects of Internet finance should be highly vigilant.Internet finance can spill over risks directly through business dealings and competition with banks,securities and other traditional financial industries,or indirectly through triggering systemic financial risks.There have been many studies that focus on qualitative analysis of Internet financial risk,but rational quantitative analysis is far from enough.In order to enrich the research in this field and improve the financial risk management mechanism,this paper use the daily data of two Internet monetary funds,P2P industry and three indices from the end of 2016 to the end of 2018,and selects the most suitable ARMA-GARCH model to calculate the values of VaR and CoVaR,which represent risk and risk spillover effect respectively.In this way,we can observe the risks and spillovers within the Internet financial system and the risk spillovers of Internet finance to traditional financial industry.The innovation of this paper lies in the study of risk spillover effect within the Internet financial industry,especially in P2P industry.It also innovatively uses the CSI Banks Index and the CSI SWS Securities Index as the indicators of traditional banking and securities industry.Besides,this paper uses the Kupiec failure frequency test to ensure the validity of model selection and the accuracy of the results of VaR and CoVaR calculations.The empirical results suggest that the risk of traditional banking industry is smaller than that of Internet finance and traditional securities industry,and it’s noteworthy that the P2P industry has low returns but high risk.In terms of risk spillover effects,first is about the positive effect.Only the spillovers from P2P industry to banking and securities industry and from the Internet finance industry as a whole to securities industry are significantly positive.Although this kind of situation is less,the intensity is very high,especially the risk spillovers of P2P industry.Second is about the negative risk spillover effect.Within the Internet finance system,the negative spillovers are found from Internet monetary fund to P2P industry and the whole Internet finance industry and from P2P industry to Yifangda Monetary Fund.In the spillovers to traditional finance,the negative effects are found from the Internet monetary fund to banking and securities industry,and from the whole Internet finance industry to banking industry.More negative risk spillovers show that most of the financial products or markets studied in this paper have the role risk dispersion among themselves.In addition,from the perspective of spillover intensity,the impact of Internet finance on the securities industry is significantly greater than that on the banking industry.Based on the conclusions,this paper provides policy recommendations on the development and risk control of traditional banking,traditional securities and Internet financial industries.In addition to monitoring its own risk,traditional financial industry should consider establishing a new integration model with the Internet monetary fund which has negative risk spillovers to disperse risks,and establishing a risk isolation mechanism with P2P industry which has positive risk spillovers to prevent risk contagion.Internet financial industry should pay more attention to its own risks,especially the P2P industry risk,strictly prevent the occurrence of systemic financial risks,carry out financial innovation step by step and incorporate innovation into financial supervision.