Downside and upside risk spillovers from commercial banks into China’s financial system: a new copula quantile regression-based CoVaR model

Maoxi Tian, Yong Jiang, Binyao Wang, Yizhe Dong, Yingying Chen and Baofeng Shi

Economic Research-Ekonomska Istraživanja, 2023, vol. 36, issue 1, 2120037

Abstract: In this paper, we investigate the downside and upside risk spillovers from three kinds of commercial banks (state-owned commercial banks (SOCBs), joint-stock commercial banks (JSCBs) and city commercial banks (CCBs)) to China’s financial system by proposing a new copula quantile regression-based CoVaR model. We find that (i) the dynamic risk spillovers show heterogeneity over time, specifically that its downward trend is significant after the stock market disaster in 2015; (ii) JSCBs display the largest risk spillovers, indicating that JSCBs are the main contributors to systemic risk in China’s financial system; and (iii) the risk spillovers are not symmetrical, as the upside risk spillovers are smaller than the downside risk spillovers. Our results have crucial implications for financial regulators and investors who want to measure and prevent systemic financial risk and optimise their investment strategies.

Date: 2023
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DOI: 10.1080/1331677X.2022.2120037

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