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Financial Contagion in China, Real Estate Markets, and Regulatory Intervention

Author

Listed:
  • Shiyun Cao

    (Institute for Economic and Social Research, Jinan University)

  • Jennifer T. Lai

    (School of Finance, Guangdong University of Foreign Studies)

  • Paul D. McNelis

    (Boston College)

Abstract

This paper assesses the network connectedness of risks in China’s stock market, focusing on how shocks in the real estate sector impact financial institutions. We analyze the effect of financial instability in real estate firms on the stability of the broader financial system. To measure the transmission of these risks, we use two key methods: generalized forecast error variance decomposition and the ∆CoVaR approach.Our findings reveal that banks often serve as net receivers of risk, while non-bank financial institutions amplify the transmission of real estate-related risks. This highlights the critical role of non-banks in propagating risk throughout the financial system and underscores the importance of robust systemic risk monitoring across financial networks.

Suggested Citation

  • Shiyun Cao & Jennifer T. Lai & Paul D. McNelis, 2024. "Financial Contagion in China, Real Estate Markets, and Regulatory Intervention," Boston College Working Papers in Economics 1083, Boston College Department of Economics.
    • Handle: RePEc:boc:bocoec:1083
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    References listed on IDEAS

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    More about this item

    Keywords

    financial contagion; China; real estate; regulation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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