Identifying systemically important financial institutions in China: new evidence from a dynamic copula-CoVaR approach

Fei Wu, Zhiwei Zhang, Dayong Zhang and Qiang Ji ()
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Fei Wu: Southwestern University of Finance and Economics
Zhiwei Zhang: Nanjing University of Aeronautics and Astronautics
Qiang Ji: Chinese Academy of Sciences

Annals of Operations Research, 2023, vol. 330, issue 1, No 5, 119-153

Abstract: Abstract We examine the risk spillovers in the Chinese financial system by adopting a time-varying copula-CoVaR approach. We first identify the systemically important financial institutions for each industry group in China’s financial sector in a dynamic context. We then find strong evidence of upside and downside risk spillovers between these key institutions and the financial system, by quantifying value at risk (VaR), conditional VaR (CoVaR) and delta CoVaR (ΔCoVaR) through time-varying copulas. The empirical results further reveal asymmetric downside and upside risk spillover effects, indicating asymmetric hedging strategies for investors during market upturns and downturns.

Keywords: Financial system; Systemically important financial institution; Risk spillovers; Copula; Delta CoVaR (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10479-021-04176-z

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