The Study Of Volatility Connectedness And Systemic Risk In Chinese Financial Institutions

In recent years,various major financial events have caused serious negative impacts on the financial system of all countries and the global economy.At the same time,because of the increasingly strengthened correlation and contagion among financial institutions,the impact of external uncertainty on financial institutions in China is further aggravated.At present,Chinese economic development is in the stage of comprehensively deepening reform,Chinese real economy and financial system are facing enormous challenges and instability in the financial system is increasing.Therefore,it is of great significance to find a method to accurately measure the degree of influence of the crisis and the duration of the crisis in the whole system cycle for understanding the structural characteristics of Chinese financial network and preventing systemic financial risk in China.Based on this background,this paper compares and analyses different methods of measuring systemic financial risk,and chooses volatility connectedness measures in the end.In the theoretical section,the definitions of various volatility connectedness measures and frequency connectedness are introduced in detail.In the empirical section,this paper selects the daily volatility data of nine publicly-traded financial firms from September 2007 to May 2018.Firstly,I measure the static and dynamic directional volatility connectedness of financial institutions in full-sample period.Secondly,I describe the time-varying characteristics of the total connectedness of financial institutions in China during the full-sample period.Finally,I measure the connectedness in the long-,medium-and short-term financial cycles.Besides,this paper uses “Event Study” to analyze the causes of frequency connectedness changes during the “2015 Chinese stock market turbulence”.According to the analysis,the main conclusions are as follows:Firstly,the range and size of "To" connectedness are much larger than that of "From" connectedness.Joint-stock commercial banks are "transmitters",while securities institutions and insurance companies are "receivers".During the crisis period,institutions with larger assets have higher "To" connectedness.Secondly,the measurement of total dynamic volatility connectedness can better show the time-varying characteristics of systemic risk of Chinese financial institutions;compared with the United States subprime mortgage crisis,Chinese financial market has higher total volatility connectedness during the European debt crisis;compared with the United States subprime mortgage crisis and the Europeandebt crisis,the total connectedness in Chinese financial institutions is at the highest level during the “2015 Chinese stock market turbulence”,which shows that the volatility connectedness of Chinese financial market is much more affected by internal factors than by external factors.Thirdly,except for the “2015 Chinese stock market turbulence”,the total volatility connectedness is dominated by the short-term(that is,high-frequency)connectedness.In the “2015 Chinese stock market turbulence”,the higher level of volatility connectedness is mainly driven by the long-term volatility connectedness.In the “2015 Chinese stock market turbulence”,the “bull news” drives the increase of systemic risk through long-term(that is,low-frequency)connectedness.In addition,the "bailout" measures only reduce the short-term volatility connectedness,and thus do not effectively resolve the systemic risk.Finally,this paper puts forward measures to prevent systemic financial risks from three aspects: strengthening supervision mechanism,standardizing market environment and implementing differentiated management.