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Interconnectedness of financial institutions based on pledged shares in China

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  • Yan, Guan
  • Liu, Zhidong

Abstract

Influential system-wide events since the Global Financial Crisis of 2008 have exhibited characteristics of risk contagion and spillover that arise from the interconnectedness of financial institutions. Both direct liability relationships and indirect interconnectedness measured by asset similarity can contribute to systemic risk. The present study constructs dynamic networks based on the same pledged shares held by different institutions in China from 2004 to 2021. The results show that policy changes such as transaction standardization and stricter rules on the use of credit can significantly affect stock-pledge transactions. This paper quantifies these effects with regard to different types of financial institutions, and finds that larger indirect interconnectedness could be related to lower stock-return volatility and higher systemic risk.

Suggested Citation

  • Yan, Guan & Liu, Zhidong, 2023. "Interconnectedness of financial institutions based on pledged shares in China," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s1544612323005238
    DOI: 10.1016/j.frl.2023.104151
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    More about this item

    Keywords

    Stock pledge; Systemic risk; Interconnectedness; Financial network; Risk management;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • 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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