The Intersectoral Systemic Risk Shock of Emergency Crisis Events in China’s Financial Market: Nonparametric Methods and Panel Event Study Analyses

Abstract

By employing two systemic risk methods, the marginal expected shortfall (MES) and the component expected shortfall (CES), this paper measures the systemic risk level of all sectors in China’s financial market from 2014 to 2022; thereby, it researches the total effect of sectoral systemic risk using a panel event study model during the three main emergency crisis events. Moreover, two nonparametric methods are utilized, the Wilcoxon signed rank sum test and the bootstrap Kolmogorov–Smirnov test, in order to investigate the changes in individual effects and the dominant ranks of sectoral systemic risk. The empirical results show that (1) the mean values and volatilities of CES and MES of all sectors have a higher level of magnitude in the extreme risk status than those in the normal risk status; (2) by comparing the total effects of three crisis events, we find that different from the continuous shock effect caused by two other events, sectoral systemic risk has a hysteresis effect on the entire market after the outbreak of COVID-19; (3) the long-term and short-term individual effects of sectoral systemic risk in all sectors are different from each other during three events; and (4) the dominance tests of MES are more sensitive and thus better demonstrate the changes in the rankings of sectoral systemic risk than the dominant tests of CES during the emergency crisis events.