Systemic risk in Chinese financial industries: a vine copula grouped CoVaR approach

This paper investigates systemic risk in Chinese financial industries by constructing a vine copula grouped CoVaR model, which accounts for the fact that various sub-industries are comprised of multiple financial institutions. The backtesting results indicate that the vine copula grouped model performs better in measuring the systemic risk in comparison to the vine copula model, which in turn validates the accuracy and effectiveness of the former. Moreover, the results indicate that banking is a major systemic risk contributor, even though it has a strong ability to resist risk. Additionally, the potential loss faced by the securities industry is big, but its systemic risk contribution is small. These results are of significance to investment decision and risk management