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The Relationship between Insurance Industry and Banking Sector in China: Asymmetric Granger Causality Test

Author

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  • Guochen Pan

    (Department of Insurance and Actuarial Science, Economics and Management School of Wuhan University, China.)

  • Jingyan Guo

    (Department of Insurance and Actuarial Science, Economics and Management School of Wuhan University, China.)

  • Qiaoling Jing

    (Department of Economics and Management, Hubei Urban Construction Vocational and Technological College, Wuhan, China.)

Abstract

With the development of the financial sector, the interaction between insurance and banking gradually increased. Traditional Granger causality tests indicate a long-term relationship between the banking and insurance sectors and the development of insurance industry Granger-causes that of the banking sector. Considering the possibly different causal impacts of positive and negative shocks, this research employs asymmetric Granger causality test to further examine the relation. Results show that negative shocks in the insurance and banking sector Granger-cause each other, the positive shocks in these two sectors do not have significant Granger cause with each other. Moreover, the positive (or negative) shocks in the insurance sector Granger- cause the opposite direction of shocks in the banking sector. According to the test results, regulatory authorities should pay more attention to the systemic risk resulted from the downturn of insurance and banking sectors, and the insurance industry should be further strengthened, since the insurance sector plays a more active role in the insurance-banking nexus and can promote the stability and development of the financial system.

Suggested Citation

  • Guochen Pan & Jingyan Guo & Qiaoling Jing, 2016. "The Relationship between Insurance Industry and Banking Sector in China: Asymmetric Granger Causality Test," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 114-127, June.
    • Handle: RePEc:rjr:romjef:v::y:2016:i:2:p:114-127
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    More about this item

    Keywords

    insurance industry; banking sector; causality; asymmetric Granger causality test; China;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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