A Financial Risk Meter for China

38 Pages Posted: 18 Nov 2021 Last revised: 7 May 2023

See all articles by Ruting Wang

Ruting Wang

Sun Yat-sen University (SYSU) - School of Business

Michael Althof

Humboldt University of Berlin - Institute for Statistics and Econometrics

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin; Charles University; National Yang Ming Chiao Tung University; Asian Competitiveness Institute; Academy of Economic Studies, Bucharest

Date Written: May 7, 2023

Abstract

The study presents FRM@China, a novel risk meter that uses quantile-lasso regression to detect systemic financial risk and dependencies of tail-events among critical financial institutions in China. The analysis demonstrates the high level of robustness of FRM@China in predicting tail-event risks and a negative correlation between FRM@China and FIs' TE risk interconnectedness. To address limitations of the current FRM approach, the study employs the Shapley value to assess the impact of different macroeconomic variables. The results offer policymakers a valuable tool for monitoring market liquidity and evaluating financial policy responses to prevent severe financial risks.

Keywords: FRM (Financial Risk Meter), Lasso Quantile Regression, Financial Network, China, Shapley Value

JEL Classification: C30, C58, G11, G15, G21

Suggested Citation

Wang, Ruting and Althof, Michael and Härdle, Wolfgang Karl, A Financial Risk Meter for China (May 7, 2023). Available at SSRN: https://ssrn.com/abstract=3965498 or http://dx.doi.org/10.2139/ssrn.3965498

Ruting Wang (Contact Author)

Sun Yat-sen University (SYSU) - School of Business ( email )

Shenzhen, P. R. China
Sun Yat-Sen University
Shenzhen, Guangdong 518107
China

Michael Althof

Humboldt University of Berlin - Institute for Statistics and Econometrics ( email )

Spandauer Str. 1
Berlin, D-10178
Germany

HOME PAGE: http://irtg1792.hu-berlin.de

Wolfgang Karl Härdle

Blockchain Research Center Humboldt-Universität zu Berlin ( email )

Unter den Linden 6
Berlin, D-10099
Germany

Charles University ( email )

Celetná 13
Dept Math Physics
Praha 1, 116 36
Czech Republic

National Yang Ming Chiao Tung University ( email )

No. 1001, Daxue Rd. East Dist.
Hsinchu City 300093
Taiwan

Asian Competitiveness Institute ( email )

Singapore

Academy of Economic Studies, Bucharest ( email )

Bucharest
Romania

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