A Study Of Dynamic Comovements Among China’s Systematic Financial Institutions Using Multivariate GARCH Models

The lessons of some previous financial crises indicate that the risks generated by financial institutions have externalities.Financial business becomes more complicated through asset-liability relationship,and the comovement between institutions and institutions is increasing.If a financial institution has a huge risk loss due to certain extreme events,the risk is quickly passed to other financial institutions with a high degree of relevance to their business through network.The external impact of risk is further amplified and even triggers a systemic financial crisis.After the 2008 financial crisis,the global financial institutions’ regulatory thinking gradually shifted from the previous micro-prudential to macro-prudential supervision.A big improvement in macroprudential supervision is to strengthen the supervision of “too big to fail” financial institutions.In recent years,China has proposed to deepen the reform of the financial market system and maintain the bottom line of systemic risks.To achieve this goal,the points is to study the risk comovement between financial institutions of system importance.From this point of view,this paper firstly analyzes the risk comovement effect and transmission mechanism between systemically important financial institutions.,and then selects the systemically important financial institution of banking,securities and insurance based on scale indicators.After constructing the combination of these institutions,We use the stock price data from 2013 to 2019 to establish a dynamic comovement between the industry based on the normal distribution,student t distribution,Laplacian distribution DCC-GARCH.The results show that there is a clear positive comovement effect between the three departments of systemically important institutions.During the 2015 stock market crash,the increase of market volatility will aggravate the dynamic comovement between the three sectors.The dynamic comovement between systemically important banks and systemically important insurance companies are the highest.and the risk sensitivity of the three-sector combination to the Shanghai Composite Index is consistent with the volatility of the returns.In view of the above results,this paper believes that China should speed up the establishment and publication of a list of systemically important financial institutions,determine the "too big to fail" institutions,and should always pay attention to the dynamic comovement between important institutions and industries to avoid the further spread of risks.The government should also establish special disposal mechanisms for special institutions to ensure that some important institutions can be safely and effectively disposed of in the event of major risks,thus preventing systemic risks.