Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/248438 
Year of Publication: 
2021
Series/Report no.: 
IRTG 1792 Discussion Paper No. 2021-022
Publisher: 
Humboldt-Universität zu Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series", Berlin
Abstract: 
This paper develops a new risk meter specifically for China - FRM@China - to detect systemic financial risk as well as tail-event (TE) dependencies among major financial institutions (FIs). Compared with the CBOE FIX VIX, which is currently the most popular financial risk measure, FRM@China has less noise. It also emitted a risk signature much earlier than the CBOE FIX VIX index in the 2020 COVID pandemic. In addition, FRM@China uses a single quantile-lasso regression model to allow both the assessment of risk transfer between different sectors in which FIs operate and the prediction of systemic risk. Because the risk indicator in FRM@China is based on penalization terms, its relationship with macro variables are unknown and non-linear. This paper further expands the existing FRM approach by using Shapley values to identify the dynamic contribution of different macro features in this type of "black box" situation. The results show that short-term interest rates and forward guidance are significant risk drivers. This paper considers the interaction among FIs from mainland China, Hong Kong and Taiwan to provide an enhanced regional tool set for regulators to evaluate financial policy responses. All quantlets are available on quantlet.com.
Subjects: 
FRM (Financial Risk Meter)
Lasso Quantile Regression
Financial Network
China
Shapley value
JEL: 
C30
C58
G11
G15
G21
Document Type: 
Working Paper

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