Systemic Risk Spillover Effects among China’s Financial Institutions: Evidence from the Spatial Econometric Model

Abstract

This study investigates the spillover and contagion effects of systemic risk among Chinese financial institutions in terms of the conditional Value-at-Risk method and spatial econometric techniques. We construct different representative spatial weight matrices to demonstrate various risk connective categories and contagion channels. The spatial autoregression model is built to reveal the different magnitudes of systemic risk contagion effects and extended as the spatial quantile regression model to measure the change in spillovers across quantiles. The results highlight that the spatial agglomeration pattern of institution-level systemic risk is highly concentrated within the same sector but highly disparate between the different sectors. The closeness of the asset price channel and the information channel would enhance the systemic risk spillover effects among institutions. The higher the single institution’s systemic risk level is, the stronger its spillovers among all of them within the same financial department, yet contrarily, the spillovers are larger at lower quantiles between different sectors due to the disparate spatial tendency of systemic risk. Besides, the spillover effects across quantiles indicate the higher tail contagion of systemic risk spatial spillovers, especially during 2015 A-share market crash and 2020 COVID-19 outbreak.