EconPapers    
Economics at your fingertips  
 

Financial stress dynamics in China: An interconnectedness perspective

Xiaoyang Yao, Wei Le, Xiaolei Sun and Jianping Li

International Review of Economics & Finance, 2020, vol. 68, issue C, 217-238

Abstract: Since the subprime crisis, financial stress has been subjected to increased attention. However, related research of emerging economics is still in its infancy. Considering that the financial market is quite interconnected due to its complexity, we measure the stress dynamics of the Chinese financial market from an interconnectedness perspective. Multiple manifestations of interconnectedness are first investigated in this paper. It is found that the interbank and bond market are highly connected and play a central role in stress transmission. Then, financial stress is measured with the consideration of the interconnectedness. Finally, the asymmetric and nonlinear economic effects of financial stress are investigated, and thresholds are determined to distinguish between periods of financial stress and normal periods. The Financial Stress Index constructed in this paper effectively captures real-time status and identifies stressed periods, thus contributing to the early warnings and subsequent risk management in China. A systemic but focused strategy is suggested to deal with financial stress.

Keywords: Financial stress index; Interconnectedness; Correlation; Spillover; Macroeconomic effect (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056020300733
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:68:y:2020:i:c:p:217-238

DOI: 10.1016/j.iref.2020.04.004

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-10-03
Handle: RePEc:eee:reveco:v:68:y:2020:i:c:p:217-238