Paper: arXiv 2409.18422

Authors: Si-Yao Wei, Kun-Liang Jiang, Wei-Xing Zhou

Abstract

Financial market resilience reflects the ability of a financial market to withstand external shocks and to recover from them, while its measurement has yet to be standardized. Accordingly, this paper quantifies the adaptability and recoverability of China’s total financial market and five key sub-markets as both proxy indicators of their resilience. The results highlight the event-driven nature of China’s financial market resilience and reveal a strong correlation between the two indicators, which is more pronounced in the stock and bond markets. Using the Diebold-Yilmaz connectedness approach, we further examine volatility spillovers among resilience of sub-markets and identify the foreign exchange market as a major transmitter of spillovers, whereas the stock and bulk commodity markets primarily act as net recipients of spillovers. Moreover, we analyze the impacts of five China-related uncertainties on financial market resilience. Overall, geopolitical risks, economic and trade policy uncertainty, and U.S.-China tensions exert significant negative impacts on total market resilience, while the effect of climate policy uncertainty remains less pronounced. Importantly, the impacts of different uncertainties exhibit heterogeneity across resilience of sub-markets. Our findings not only enrich the resilience measurement of financial market but also provide new evidence to inform targeted risk management and policy design aimed at strengthening financial system’s resilience.

Complexity vs Empirical Score

  • Math Complexity: 5.5/10
  • Empirical Rigor: 7.5/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper provides a rigorous empirical examination of China’s financial market resilience using a Resilience Triangle framework combined with TVP-VAR and Diebold-Yilmaz connectedness approaches. It successfully quantifies two dimensions of resilience (adaptability and recoverability) and clearly maps systemic volatility spillovers and policy uncertainty impacts.

Research Flowchart

  flowchart TD
    A[Research Goal: Measure China's Financial Market Resilience & Impact of Uncertainties] --> B[Data Inputs: 5 Sub-Markets & 5 Macro Uncertainty Indicators]
    B --> C[Quantify Resilience: Adaptability & Recoverability Metrics]
    C --> D[Diebold-Yilmaz Connectedness Approach]
    D --> E[Key Findings 1: FX Market is Major Spillover Transmitter; Stock & Commodities are Net Recipients]
    C --> F[Impact Analysis of Macro Uncertainties]
    F --> G[Key Findings 2: Geopolitics, EPU & US-China Tensions Harm Resilience; Climate Risk Effect Minimal]