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Assessing the contribution of China’s financial sectors to systemic risk

Morelli, David A., Vioto, Davide (2020) Assessing the contribution of China’s financial sectors to systemic risk. Journal of Financial Stability, 50 . Article Number 100777. ISSN 1572-3089. (doi:10.1016/j.jfs.2020.100777) (KAR id:82958)


This paper aims to assess the level of systemic risk of China's financial system along with the main systemic risk contributors over the period from January 2010 to December 2016, a period spanning the deflation of China's property bubble, the banking liquidity crisis, and the stock market crash. To this end we divide the financial system into three sectors, namely: banks, insurance and brokerage industries, and real estate, applying the ΔCoVaR introduced by Adrian and Brunnermeier (2016) as the measure for systemic risk. Our findings show that the systemic risk level of China's financial system reacted to the main systemic events covered by our sample period, reaching a major peak during the stock market crash of 2015. We further show, through the Wilcoxon signed rank test, that the systemic risk level of the financial system and sectors significantly increased after the main systemic events. In order to provide a formal systemic risk ranking of the financial sectors, we apply the bootstrap Kolmogorov-Smirnov test as developed by Abadie (2002), finding that the banking sector contributed the most, followed by real estate and subsequently insurance and brokerage industries. Finally, comparing banks systemic risk's determinants between China and the US, the reduced level of competition among banks in China is found to increase banks’ systemic risk, contrary to what is found in the US.

Item Type: Article
DOI/Identification number: 10.1016/j.jfs.2020.100777
Uncontrolled keywords: Systemic risk, ΔCoVaR Dominance test, Financial stability
Divisions: Divisions > Kent Business School - Division > Department of Accounting and Finance
Depositing User: David Morelli
Date Deposited: 16 Sep 2020 09:02 UTC
Last Modified: 27 Oct 2023 13:16 UTC
Resource URI: (The current URI for this page, for reference purposes)

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Morelli, David A..

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Vioto, Davide.

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