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A financial risk meter for China

Author

Listed:
  • Wang, Ruting
  • Althof, Michael
  • Härdle, Wolfgang Karl

Abstract

The study presents FRM@China, a novel risk meter that uses quantile-lasso regression to detect systemic financial risk and dependencies of tail-events among critical financial institutions in China. The analysis demonstrates the high level of robustness of FRM@China in predicting tail-event risks and a negative correlation between FRM@China and FIs' TE risk interconnectedness. To address limitations of the current FRM approach, the study employs the Shapley value to assess the impact of different macroeconomic variables. The results offer policymakers a valuable tool for monitoring market liquidity and evaluating financial policy responses to prevent severe financial risks.

Suggested Citation

  • Wang, Ruting & Althof, Michael & Härdle, Wolfgang Karl, 2023. "A financial risk meter for China," Emerging Markets Review, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:ememar:v:56:y:2023:i:c:s1566014123000572
    DOI: 10.1016/j.ememar.2023.101052
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    FRM (Financial Risk Meter); Lasso quantile regression; Financial network; China; Shapley value;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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