Econometric analysis of the risk transfer in capital markets. The case of China

Econometric analysis of the risk transfer in capital markets. The case of China

Magdalena Osińska, Marcin Fałdziński, Tomasz Zdanowicz

 

Keywords: financial markets, expected shortfall, Granger causality, risk transfer, value at risk

 

Summary: The problem of risk transferring is well known in empirical finance. Agents often try to transmit their risk from one market to another when the limit values of their potential losses are being approached or exceeded. The purpose of the paper is to find out whether the Chinese financial markets in the last decade were a source or the result of the risk. Much attention has been paid to the period of the last financial crisis. One of the important findings is that the risk, generated locally, is transmitted via sequent markets to the absorbing one. This process may last up to 40 trading days. To detect whether the risk was transmitted between two markets or not, the Granger causality tests have been applied in connection with the causality in variance as well as causality in risk. Such empirical characteristics as the value at risk and expected shortfall are considered.

 

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