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Market-based versus bank-based financial structure in China: From the perspective of financial risk

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  • Liu, Chao
  • Fan, Yixin
  • Xie, Qiwei
  • Wang, Chao

Abstract

The evolution of financial structure is not only a persistent issue but also a key factor affecting the financial risk. Concerns over the financial structure evolution and risk prevention have been voiced, but studies documented the interaction between financial risk and financial structure are still in their infancy. Therefore, this study investigates it by using detrended cross-correlation analysis, its multifractal asymmetric version, and detrended cross-correlation based on time-delay. Empirical research finds that the market-based financial structure increases financial risk in China. The characteristics of financial risk and financial structure are asymmetry, multifractal, bidirectional transmission, and nonlinear causality. The financial structure's influence on financial risk is strengthened within 15 months, while financial risk's influence on the financial structure strengths within 7 months. These findings support financial supervisory authorities to seek effective strategies to facilitate the evolution of the financial structure and establish a more stable financial system.

Suggested Citation

  • Liu, Chao & Fan, Yixin & Xie, Qiwei & Wang, Chao, 2022. "Market-based versus bank-based financial structure in China: From the perspective of financial risk," Structural Change and Economic Dynamics, Elsevier, vol. 62(C), pages 24-39.
    • Handle: RePEc:eee:streco:v:62:y:2022:i:c:p:24-39
    DOI: 10.1016/j.strueco.2022.03.013
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    More about this item

    Keywords

    Financial structure; Financial risk; Detrended cross-correlation analysis; Macro-micro prudential supervision;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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