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Interconnectedness, systemic risk, and the influencing factors: Some evidence from China’s financial institutions

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  • Wu, Shan
  • Tong, Mu
  • Yang, Zhongyi
  • Zhang, Tianyi

Abstract

From the perspective of interconnectedness, we construct a systemic risk spillover network of China’s financial institutions. After deconstructing the constructed network and combine with the analysis of the influencing factors, we find that: (i) All industries and institutions within the financial system are highly interconnected, and each sector can act as a risk receiver or risk driver. (ii) During the extreme market conditions, the connectedness between each two financial institutions will increase dramatically. (iii) The network of China’s financial institutions has the characteristics of “small world” and “scale-free”, and the overall connection of network structure has significant time-varying characteristics. (iv) The asset size, leverage ratio, SRISK index of financial institutions will influence their connection degree positively, while the current ratio of financial institutions and changes of the real estate climate index have the opposite impacts. Our findings hold important implications for regulations.

Suggested Citation

  • Wu, Shan & Tong, Mu & Yang, Zhongyi & Zhang, Tianyi, 2021. "Interconnectedness, systemic risk, and the influencing factors: Some evidence from China’s financial institutions," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 569(C).
    • Handle: RePEc:eee:phsmap:v:569:y:2021:i:c:s0378437121000376
    DOI: 10.1016/j.physa.2021.125765
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    Cited by:

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    2. Liu, Zhenhua & Shi, Xunpeng & Zhai, Pengxiang & Wu, Shan & Ding, Zhihua & Zhou, Yuqin, 2021. "Tail risk connectedness in the oil-stock nexus: Evidence from a novel quantile spillover approach," Resources Policy, Elsevier, vol. 74(C).
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    4. Zheng, Yingfei & Shen, Anran & Li, Ruihai & Yang, Yuhong & Wang, Shengjin & Cheng, Lee-Young, 2023. "Spillover effects between internet financial industry and traditional financial industry: Evidence from the Chinese stock market," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    5. Hu, Yunchao & Lu, Guibin & Gao, Wenyu, 2022. "A study on China’s systemically important financial institutions based on multi-time scale causality networks," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 607(C).

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    More about this item

    Keywords

    Systemic risk; Financial institutions; Interconnectedness; Financial crisis;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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