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Systemic risk in the Chinese financial system: A copula‐based network approach
Author(s) -
Zhang Zhiwei,
Zhang Dayong,
Wu Fei,
Ji Qiang
Publication year - 2021
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1892
Subject(s) - systemic risk , copula (linguistics) , economics , financial stability , financial networks , econometrics , network structure , china , financial economics , actuarial science , financial crisis , financial system , computer science , macroeconomics , political science , machine learning , law
This article examines the systemic risk in the Chinese financial system by combining copula and graph theory approaches. We start from identifying the interdependence amongst financial institutions based on static and dynamic copula functions. A minimum spanning tree is then generated to analyse the network structure in the financial system in both static and dynamic contexts. Evidence from both static and dynamic analysis verifies the systemic importance of Industrial Bank Co., Ltd. Some others, Shanghai Pudong Development Bank and Huaxia Bank Co., Limited, occasionally show systemic importance in the dynamic setting. We further examine the stability of the network structure and find that whilst the dependence structure exhibits time‐varying patterns, certain relationships appear to be more stable than others. Our findings hold important policy and investment implications.