Abstract
The global financial market shocks have intensified due to the COVID-19 epidemic and other impacts, and the impacts of economic policy uncertainty on the financial system cannot be ignored. In this paper, we construct asymmetric risk spillover networks of Chinese financial markets based on five sectors: bank, securities, insurance, diversified finance, and real estate. We investigate the complexity of the risk spillover effect of Chinese financial markets and the impact of economic policy uncertainty on the level of network contagion of financial risk. The study yields three findings. First, the cross-sectoral risk spillover effects of Chinese financial markets are asymmetric in intensity. The bank sector is systemically important in the risk spillover network. Second, the level of risk stress in the real estate sector has increased in recent years, and it plays an important role in the path of financial risk contagion. Third, Economic policy uncertainty has a significant positive impact on the level of network contagion of financial risk of Chinese financial markets.
Highlights
Corresponding to the three main elements of systemic financial risk: shocks, contagion mechanisms, and the consequences of macroeconomic losses. e generation mechanism of systemic financial risk consists of three main processes: the emergence of systemic financial risk triggers, cross-sectoral risk contagion, and the generation of systemic financial risk
The global economic and political situation is volatile. e COVID-19 epidemic and the Sino-US trade war have intensified economic policy uncertainty, financial market shocks, and cross-market risk spillover have subsequently increased. It is of great academic value and practical significance to quantify the level of financial market risk spillover, clarify the role of different submarkets in the financial risk spillover network, and explore the driving impact of economic policy uncertainty on financial risk contagion and financial stability
Complex network technology can incorporate financial market complexity into spatial network models and provide a parsing framework for systemic financial risk networked generation mechanisms through network topology analysis, which is an important tool for risk derivation and contagion analysis in financial markets (Caccioli et al [1])
Summary
Corresponding to the three main elements of systemic financial risk: shocks, contagion mechanisms, and the consequences of macroeconomic losses. e generation mechanism of systemic financial risk consists of three main processes: the emergence of systemic financial risk triggers, cross-sectoral risk contagion, and the generation of systemic financial risk. E COVID-19 epidemic and the Sino-US trade war have intensified economic policy uncertainty, financial market shocks, and cross-market risk spillover have subsequently increased. Based on the above analysis, this paper constructs asymmetric risk spillover networks of the Chinese financial market using stock market return series of five sectors: banking, securities, insurance, diversified finance, and real estate, and explores the driving impact of economic policy uncertainty on the level of network contagion of financial risk. Constructing cross-sectoral risk spillover networks of Chinese financial markets and second, analyzing the risk spillover characteristics of the Chinese financial market and quantifying the level of network contagion of financial risk, exploring the driving role of economic policy uncertainty on the level of financial risk network contagion through empirical analysis. Part 5 concludes the study and puts forward the policy implications
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