Network volatility, contagion, and two-pillar policies: Insights from Chinese financial sector data

Xiaoyuan Zhang and Hang You

The North American Journal of Economics and Finance, 2025, vol. 79, issue C

Abstract: We employ the LASSO-ΔCoVaR model to establish multilayered risk networks encompassing China’s banking, insurance and securities industries and construct novel indicators to measure risk volatility and contagion. We then analyze the impact of two-pillar policies on mitigating financial risk through VAR models. Our findings reveal that: (1) The network volatility during stock market downturns serves as a precursor to spillover effects. (2) The implementation of stricter macroprudential policies initially elicits negative market responses, yet markets adjust and stabilize over-time. (3) Adjustments in monetary policy yield short-term reductions in financial sector risk. (4) two-pillar policies complement each other in enhancing financial stability.

Keywords: Two-pillar policies; Volatility; Risk contagion; Multilayer network (search for similar items in EconPapers)
JEL-codes: G18 G33 L14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:79:y:2025:i:c:s1062940825000890

DOI: 10.1016/j.najef.2025.102449

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