Investigating The Risk Contagion Of Gradual Opening-up Chinese Assets With Overseas Assets

In the past 20 years,Chinese financial markets have been gradually opening up to the world,and remarkable results have been achieved.However,in the process of promoting the internationalization of the capital market,it also inevitably brings the input of international financial risks and the output of financial risks.The imported risk has drawn special attention in China.Based on this background,this paper tries to explore: Has the risk contagion effect between Chinese assets and overseas assets changed? What are the roles of Chinese assets in global capital market in both normal and crisis periods? Is the risk contagion effect between Chinese assets and overseas assets asymmetrical? What is the main channel of risk contagion between Chinese assets and overseas assets? In this paper,connectedness network model is used to investigate the volatility spillover effect and further investigate the risk contagion of Chinese assets with overseas assets.From the macro and micro aspects,static and dynamic perspectives,this paper systematically discusses the time-varying characteristics,asymmetric effect and spectrum differences of the risk contagion between Chinese assets with overseas assets,providing reference to the portfolio risk management and effective regulation.In terms of the time-varying characteristics of risk contagion between Chinese assets and overseas assets,this paper uses the start of Shanghai-Hong Kong Stock Connect as sample breakpoint,finding that the “TO” and “FROM” connectedness of Chinese stock market,bond market and foreign exchange market has increased significantly in recent years,showing that the connection of Chinese assets with overseas assets has been more and more close,and volatility spillover effect is more obvious.More importantly,during the A-share market crash period in 2015,Chinese stock market became the issuer of volatility spillover in the global capital market.In terms of the asymmetric effect of the connectedness between Chinese assets and overseas assets,this paper empirically finds that the negative volatility that Chinese assets receive is greater than the positive volatility.Meanwhile,the net connectedness is negative,indicating that there has been an obvious risk input characteristic in Chinese financial markets.In terms of the speed and channel of risk contagion between Chinese assets and overseas assets,this paper empirically finds that the propagation speed of volatility focuses on low frequency,followed by high frequency,and the intermediate frequency is not obvious.This finding means that the risk contagion of global assets is mainly through the global supply chain and investors' long-term expectation for global economy.During the 2008 financial crisis period,low-frequency connectedness among global assets increased significantly,indicating that the investors held pessimistic expectation for global economy.However,during the A-share market crash period in China in 2015,the high-frequency connectedness between global assets rose,indicating that the connectedness in that time was mainly driven by short-term investor sentiment and capital flow.This paper is meaningful for both portfolio management and regulatory policy making.For investors,this paper could help them better control risk when investing Chinese assets.For the regulators,this paper can help them better evaluate the effect of Chinese gradual financial liberalization,and monitor the input systematic risk.