Financial Contagion in China, Real Estate Markets, and Regulatory Intervention

Shiyun Cao, Jennifer Lai and Paul McNelis (paul.mcnelis@bc.edu)
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Shiyun Cao: Institute for Economic and Social Research, Jinan University

No 1083, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper assesses the network connectedness of risks in China’s stock market, focusing on how shocks in the real estate sector impact financial institutions. We analyze the effect of financial instability in real estate firms on the stability of the broader financial system. To measure the transmission of these risks, we use two key methods: generalized forecast error variance decomposition and the ∆CoVaR approach.Our findings reveal that banks often serve as net receivers of risk, while non-bank financial institutions amplify the transmission of real estate-related risks. This highlights the critical role of non-banks in propagating risk throughout the financial system and underscores the importance of robust systemic risk monitoring across financial networks.

Keywords: financial contagion; China; real estate; regulation (search for similar items in EconPapers)
JEL-codes: G21 G22 G23 G28 (search for similar items in EconPapers)
Date: 2024-11-26
New Economics Papers: this item is included in nep-cna, nep-fdg, nep-net and nep-ure
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