Social Sciences in China, 2025

Vol. 46, No. 2, 2025

The Interconnected Structure and Intrinsic Stability of China’s Financial Markets

(Abstract)

Zhang Ailian

Financial power constitutes a pivotal support for fostering high-quality economic development, and financial stability serves as a fundamental prerequisite for the seamless operation of the financial system. Financial stability is primarily manifested in the interlinkages across different financial markets and their internal structural dynamics, which is especially embodied in volatility transmission under extreme conditions. Building upon existing research, this paper broadens the scope of analysis regarding volatility connectedness across markets, offering a more comprehensive portrayal of their interconnected structure. There exists a significant tail structure among different financial markets in China, characterized by heterogeneity in the volatility transmission of upward and downward fluctuations, along with notable bidirectional volatility transmission between distinct financial markets. Consequently, systems leveraging big data and AI technology should be used to monitor the tail linkage of financial markets in real-time, issue risk warnings, and devise preventive strategies. Additionally, hedging instruments and cross-border liquidity support mechanisms should be designed, taking into account the tail correlations between markets, to uphold market stability and propel high-quality economic development.

Keywords: financial market, linkage effect, intrinsic stability