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Too Connected to Fail? Evidence from a Chinese Financial Risk Spillover Network

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  • Yu Chen
  • Jie Hu
  • Weiping Zhang

Abstract

This paper focuses on volatility spillover effects and considers the issue of how to measure the connectedness of networks among financial firms. To assess the network connectedness of firms from different industries, we proposed a novel procedure and applied it to 20 leading financial institutions from four industries in China's stock markets. The results show that the total connectedness of the Chinese financial system was much higher during the stock market crisis between June 2015 and February 2016 than during stable periods of economic development. This analysis can be used to determine which firms play a dominant role in risk transmission throughout the entire system. It is suggested that the government should provide targeted regulatory policies to particular types of firms.

Suggested Citation

  • Yu Chen & Jie Hu & Weiping Zhang, 2020. "Too Connected to Fail? Evidence from a Chinese Financial Risk Spillover Network," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 28(6), pages 78-100, November.
  • Handle: RePEc:bla:chinae:v:28:y:2020:i:6:p:78-100
    DOI: 10.1111/cwe.12357
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    2. Wang, Ze & Gao, Xiangyun & Huang, Shupei & Sun, Qingru & Chen, Zhihua & Tang, Renwu & Di, Zengru, 2022. "Measuring systemic risk contribution of global stock markets: A dynamic tail risk network approach," International Review of Financial Analysis, Elsevier, vol. 84(C).

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