Author(s)

Cuibei Zhang, Wanxia Li, Yixuan Qian

Corresponding Author

Yixuan Qian

ABSTRACT

The Financial Stress Index (FSI), as a powerful tool to measure systemic financial risk in China, can provide a basis for regulators to formulate relevant macro-prudential policies. In this paper, nine representative financial stress indicators are selected from the banking system, bond market, stock market, foreign exchange market and real estate market, and the weights of each indicator are calculated using the Attribute Hierarchical Method (AHM) and Entropy Weighting Method (EWM), respectively, and coupled with the calculation to construct the Chinese Financial Stress Index (CFSI). Further, GM (1, 1) is applied to predict the future development trend of CFSI. This paper constructs and forecasts the CFSI based on A-E-G method (AHM- EWM- GM (1, 1)). The results show that the CFSI index synthesized by the AHM and EWM assignment method can effectively identify major financial events and is real-time and robust. The GM (1, 1) predicts that China's financial stress will decline moderately in the future five years. This implies that the consistent implementation of financial regulatory policies can achieve the desired results.

KEYWORDS

Systemic financial risk, AHM, EWM, GM (1, 1), Chinese Financial Stress Index