The Impact of COVID-19 on Chinese Systemic Risk Based on Dynamic Tail-risk Network Model

This paper investigates the impact of COVID-19 pandemic on Chinese systemic risk using a dynamic network model. We select 104 listed financial institutions to construct a dynamic tail-risk network during the epidemic. The tail-risk network is estimated by the Factor-Adjusted Regularized Model (FARM) selection approach. To analyze the impact of COVID-19 pandemic on systemic risk, we identify the role of financial institutions in the dynamic tail-risk network. Results show that COVID-19 pandemic increases the number of risk-drivers and decreases the number of risk-takers, meaning that it enhances systemic financial risk in China. Our evidence provides an effective method to regulate systemic risk in the financial market and is helpful to offer rescue policies once systemic risk events occur. © 2021 The Authors. Published by Elsevier B.V.