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Identifying systemically important financial institutions in China: new evidence from a dynamic copula-CoVaR approach

Author

Listed:
  • Fei Wu

    (Southwestern University of Finance and Economics)

  • Zhiwei Zhang

    (Nanjing University of Aeronautics and Astronautics)

  • Dayong Zhang

    (Southwestern University of Finance and Economics)

  • Qiang Ji

    (Chinese Academy of Sciences
    University of Chinese Academy of Sciences)

Abstract

We examine the risk spillovers in the Chinese financial system by adopting a time-varying copula-CoVaR approach. We first identify the systemically important financial institutions for each industry group in China’s financial sector in a dynamic context. We then find strong evidence of upside and downside risk spillovers between these key institutions and the financial system, by quantifying value at risk (VaR), conditional VaR (CoVaR) and delta CoVaR (ΔCoVaR) through time-varying copulas. The empirical results further reveal asymmetric downside and upside risk spillover effects, indicating asymmetric hedging strategies for investors during market upturns and downturns.

Suggested Citation

  • Fei Wu & Zhiwei Zhang & Dayong Zhang & Qiang Ji, 2023. "Identifying systemically important financial institutions in China: new evidence from a dynamic copula-CoVaR approach," Annals of Operations Research, Springer, vol. 330(1), pages 119-153, November.
    • Handle: RePEc:spr:annopr:v:330:y:2023:i:1:d:10.1007_s10479-021-04176-z
    DOI: 10.1007/s10479-021-04176-z
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