Research On The Risk Spillover Effect Between Cryptocurrency And Chinese Financial Market

In November 2008,Satoshi Nakamoto,a Japanese programmer,created Bitcoin with blockchain as the underlying technology and combined with the principles of cryptography.Since then,the cryptocurrency market has witnessed explosive development.However,there is a huge price bubble in cryptocurrencies.With the expansion of the market size,the impact of the cryptocurrency market on the traditional financial market is increasing.Especially since the outbreak of COVID-19,the global political and economic situation is complex and changeable,which has caused a great impact on the cryptocurrency market and other global financial markets.Because of the great risks in digital currency market,China adopts a stricter regulatory strategy.However,the unique decentralized and anonymous characteristics of digital cryptocurrencies,different regulatory strategies for digital cryptocurrencies in different countries and investors’ strong demand for trading have all brought great obstacles to regulation.Chinese investors are still one of the most important participants in the cryptocurrency market,which makes the risk of the cryptocurrency market and the domestic financial market more relevant.At the same time,with the increasing openness of the domestic financial market,its relationship with the international financial market becomes more closely,which also provides a channel for the risk input of the digital cryptocurrency market.Therefore,it is necessary to study the risk spillover effect and spillover path between the digital cryptocurrency market and the domestic financial market,so as to provide a reference for investors and regulators.Based on the above background,this paper firstly uses the GARCH-VaR method to measure the risks of the digital cryptocurrency market and the Chinese financial market,then compares the differences in risk levels and risk fluctuations between the digital cryptocurrency market and the Chinese financial market.On this basis,based on the calculated VaR value,the TVP-VAR-DY spillover index method is used to analyze the risk spillover from the digital cryptocurrency market to the Chinese financial market from the static and dynamic perspectives.Considering the large market capitalization and influence of head digital cryptocurrencies such as Bitcoin,this paper further studies the risk spillover effect of representative digital cryptocurrencies on domestic financial markets.Finally,based on the net spillover index between the two markets,the risk spillover network between the digital cryptocurrency market and the domestic financial market and the representative digital cryptocurrency market and the domestic financial market were constructed,and the topological structure of the risk spillover network was analyzed.Taking the outbreak of COVID-19 as the node,the risk spillover network before the outbreak of COVID-19 and the risk spillover network after the outbreak of COVID-19 were constructed respectively,and the dynamic changes brought by the impact of COVID-19 on the structure of the risk spillover network were analyzed.Based on the research,we have drawn some conclusions.First,the risk measurement results based on GARCH-VaR show that the overall risk level and risk volatility of the digital cryptocurrency market are significantly higher than those of the domestic financial market,and the VaR value trend of each sub-market within the digital cryptocurrency system is consistent with that of the domestic financial system.Using GARCH-VaR method to measure the extreme risk level of each market has certain reliability.Second,the static analysis of the risk spillover effect shows that the risk correlation between the digital cryptocurrency market and the domestic financial market is generally small,but there is indeed a risk transmission channel from the digital cryptocurrency to the domestic financial market.Third,the spillover effects of risk,according to the results of the dynamic analysis of digital encryption currency with the domestic financial markets always overflow index has obvious dynamic characteristics,is sensitive to extreme events,especially in the new crown pneumonia outbreak,hit the market risk spillover effect between enhanced markedly,digital encryption money market to increase net spillover effects of the domestic financial market.Fourth,the structure of the risk spillover network changed significantly before and after the COVID-19 outbreak.The impact of the COVID-19 outbreak significantly aggravated the net risk spillover effect of digital cryptocurrencies on the domestic financial market,and the risk spillover network became closer.Finally,on the basis of the previous research conclusions,relevant suggestions are put forward for digital cryptocurrency investors and regulators,aiming to provide a reference for regulating the digital cryptocurrency market and preventing risks in the digital cryptocurrency market.