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A study of interconnections and contagion among Chinese financial institutions using a ΔCoV aR network

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  • Chen, Yan
  • Mo, Dongxu
  • Xu, Zezhou

Abstract

With the development of market economy, the interconnections among Chinese companies are becoming closer and the risk exposures are increasing. In this study, a tail risk network based on ΔCoV aR is constructed to access interconnectedness and contagion between Chinese financial institutions and explore the existence of community structures in the network. The results demonstrate that securities are closely linked to other industries and risk contagion within the industry is more serious for banks, insurers, and diversified financial institutions. The systemically important financial institutions are concentrated in the banking and insurance industries. In addition, there is an obvious community structure with industry characteristics in the Chinese financial system. The approach proposed herein can help regulators develop effective policies and investors disperse investment risks.

Suggested Citation

  • Chen, Yan & Mo, Dongxu & Xu, Zezhou, 2022. "A study of interconnections and contagion among Chinese financial institutions using a ΔCoV aR network," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321003950
    DOI: 10.1016/j.frl.2021.102395
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    More about this item

    Keywords

    Interconnections; Contagion; Tail risk network; ΔCoVaR;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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