Volatility connectedness in the Chinese banking system: Do state-owned commercial banks contribute more?
Longfeng Zhao and
Journal of International Financial Markets, Institutions and Money, 2018, vol. 57, issue C, 205-230
Using the volatility spillover network of Diebold and Yilmaz (2014), we investigate volatility connectedness in the Chinese banking system based on daily range-based volatility series of 14 publicly-traded commercial banks from 2008 to 2016. Both static and dynamic total connectedness show that the 14 commercial banks are highly interconnected. Total directional connectedness (including from-connectedness, to-connectedness and net-connectedness) shows that state-owned commercial banks contribute less to volatility connectedness than joint-stock and city commercial banks, and that city commercial banks are the largest (net-) emitters of volatility connectedness. Statically, we find a positive (negative) rank correlation between size and from-connectedness (to-connectedness and net-connectedness) of banks. Dynamically, however, the positive rank correlation loses its statistical significance and the negative rank correlation disappears completely during the recent global financial crisis and “the 2015–2016 Chinese stock market turbulence.” Our findings suggest (i) that a bank might be “too big to fail,” but not necessarily “too interconnected to fail” and vice versa, and (ii) that these two cases may coexist conditional on the system being in distress.
Keywords: Volatility spillovers; Connectedness; Commercial banks; Chinese banking system; Financial regulation; Financial network (search for similar items in EconPapers)
JEL-codes: G21 G28 C32 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:57:y:2018:i:c:p:205-230
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