The Risk Measurement And Dynamic Spillover Effect Test Of China's Financial Submarkets

With the rapid growth of China's economy and the continuous expansion of its opening,capital flows and information transmission in financial sub-markets have become faster.The diffusivity of financial risks makes the risk of a sub-market spread to other sub-markets,resulting in spillover effects,which in turn causes violent shocks in the financial system.Therefore,a reasonable and effective measurement of risks and a study of risk linkages and spillover effects in financial sub-markets are conducive to understand and track various risks timely,in order to hold the direction of risk management and prevent to further spread market risks.It's of great significance to promote the healthy and stable development of China's economy.Based on the above research background,this paper conducts a dynamic econometric analysis of risk measurement and spillover effects among the three most representative financial sub-markets in China: stock market,bond market and foreign exchange market.On the basis of Generalized Auto-regressive Conditional Heteroskedasticity Model,Value at Risk(VaR)is used to measure the risks of financial sub-markets from 2007 to 2020,and the risk volatility of each financial sub-market is dynamically depicted.Using the Directed Acyclic Graph(DAG)technology,the existence and directionality of the synchronic causal relationship among the financial sub-markets' risks in different periods are identified.Under the Generalized Forecast Error Variance Decomposition,the total spillover index,directional spillover index and net spillover index models are constructed to examine the intensity and direction of risk spillovers in the stock,bond and foreign exchange markets from a dynamic perspective,and explore the risk transmission mechanism and dynamic interaction between financial sub-markets in different periods.The research results show that: first of all,the risks of financial sub-markets have significant time-varying and asymmetry.When major financial economic events and policy changes occur,the synchronic causality among financial sub-markets risks will be enhanced.Throughout the sample period,there is a causal relationship of risks from the bond market to the stock market while not existing between the stock market and the foreign exchange market,as well as the bond market and the foreign exchange market.Second,there exists risk spillover effect evidently within the financial market system,and the total risk spillover index fluctuates between 10% and 50%,on average,the overall risk contribution is 23%.Third,the intensity and direction of risk spillover effects in financial sub-markets are greatly impacted by major financial economic events and policy changes.The stock market and foreign exchange market have stronger capacities of risk transmission and reception than the bond market.Last,from the perspective of the interactive net risk spillover index,the “seesaw” effect makes the net risk spillover effect of the stock market to the bond market the most violent.With the two-way fluctuation and increasing flexibility of the RMB exchange rate,the net risk spillover index of the stock market to the foreign exchange market is generally positive and the foreign exchange market to the bond market has a gradual downward trend.