Description

This paper develops a new risk meter for China (FRM@China) to detect systemic financialrisk as well as tail event (TE) dependencies among major financial institutions (FIs). Com-pared with CBOE FIX VIX, the most popular financial risk measure, FRM@China has lessnoise and emitted a risky signature much earlier than CBOE FIX VIX index in 2020 COVIDpendemic. Besides, FRM technology allows the inspection of the risk transfer between varioussectors that those FIs operate in as well as the prediction of systemic risk in one quantile-lassoregression model. Since the FRM index is based on the penalization terms, its relationshipwith macro variables is unknown and non-linear. This paper expands the existing FRM byusing Shapley values to obtain the dynamic contribution of different macro features in such"black box" situation. The results discover that short term interest rate and forward guid-ance are risk drivers. Considering the interaction among FIs from mainland, Hong Kong andTaiwan, This paper provides a regional tool set for regulators to analyze the financial policyresponse