Social Sciences in China (Chinese Edition)

No.12, 2018

Global Systemic Financial Risk Spillovers and their External Impact

(Abstract)

Yang Zihui and Zhou Yinggang

The impact of the global financial crisis sparked widespread concern across the world about systemic financial risk and led to the reexamination of regulatory mechanisms. The traditional principle of “too big to fail” is changing to a new idea: “too connected to fail.” We use “directed acyclic graph technology” and network topology analysis to examine the dynamic evolution of global systemic financial risk and the risk trends in global financial markets from the perspective of network association. Our findings show that financial markets in Chinese mainland are net importers of risk spillovers and that systemic financial risk has a clear cross-market contagion effect due to a global volatility spillover scale of 64 percent. To maintain the stability and security of China’s financial markets, consideration should be given to the regulatory precept of “too connected to fail” in establishing macro-prudential risk prevention mechanisms.