Does systemic risk in the fund markets predict future economic downturns?

• Published in: International review of financial analysis 2024-03, Vol.92, p.103089, Article 103089
• Main Authors: Zhou, Dong-hai, Liu, Xiao-xing
• Format: Article
• Language: English
• Subjects: Economic downturn; Fund market; Measures of systemic risk; Quantile-on-quantile regression; Tail risk prediction
• ISSN: 1057-5219; 1873-8079
• DOI: 10.1016/j.irfa.2024.103089

This paper is the first attempt to focus on the measurement of systemic risk in the China's fund market and the forecasting power of systemic risk under different conditions on the macroeconomic indicators of the whole distribution. Our findings are as follows. First, stock and ETF funds are the least resilient to risks that could trigger a systemic fund market crisis, while money fund are the most resilient. Second, the systemic risk measures ∆CoVaR and MES, which are constructed based on measures of tail dependence, reflect the impact of risky events on the fund market and are ahead of commonly used measures. Third, when systemic risk is in the left tail quantile, the negative impact of systemic risk on consumer confidence diminishes as consumer confidence moves from the left to the right tail quantile, while the negative impact on economic growth shows an inverted “V” shape. •Measurement of systemic risk in China's fund market;•The crisis suffered by stock and ETF funds is the main factor that caused the market to fall into a systemic crisis;•The forecasting power of systematic risk on macroeconomic indicators depends on their quantiles;•The negative impact of systematic risk on consumer confidence decreases as the quantile of consumer confidence increases;•The negative impact of systemic risk on economic growth has an inverted “V” shape.