The systemic risk of China’s stock market during the crashes in 2008 and 2015
- Resource Type
- Authors
- Shangmei Zhao; Xinyi Chen; Junhuan Zhang
- Source
- Physica A: Statistical Mechanics and its Applications. 520:161-177
- Subject
- Statistics and Probability
Crash
Market microstructure
Monetary economics
Condensed Matter Physics
01 natural sciences
010305 fluids & plasmas
Market liquidity
Granger causality
0103 physical sciences
Financial crisis
Systemic risk
Economics
Stock market
Volatility (finance)
010306 general physics
- Language
- ISSN
- 0378-4371
This paper studies the systemic risk of China’s stock market during crashes in 2008 and 2015 using the 5-minute intraday transaction data. The results show that liquidity contracted significantly after the downtrend. The systemic risk was magnified during the crash in 2008 while the system risk increased to an abnormal level before the crash in 2015. The volatility of systemic risk rose in 2015 compared to the one in 2008. Moreover, the Johansen co-integration test proves that there is a long-run equilibrium relationship between security margin trading and systemic risk volatility. Granger causality test indicates that margin financing is the Granger cause of the volatility of systemic risk in a bear market. This shows that the government response may impose negative effects on the systemic risk of China’s stock market. It helps us better to understand features of systemic risk in China’s stock market, and offer new ideas on how to reduce and stabilize the systemic risk.