The Risk Spillover Effect of China's Financial Market and Real Economy——Based on Network Correlation Analysis

Financial security is crucial for the development of the Chinese economy owing to the complex interconnections between the financial market and the real economy. This study employs the generalized variance decomposition method to construct a two-way risk spillover model between China’s financial market and the real economy. It investigates the two-way risk spillover trans- 4 mission and risk hedging in different markets when facing external shocks over the past four years. Firstly, following external shocks, both the overall market’s total risk spillover and individual markets’ risk spillover exhibit different characteristics and effects across various periods. Secondly, convertible bonds in the bond market, along with the securities lending, margin trading and short selling in the stock market, are identified as key channels for cross-market financial transmission. This study underscores the importance of coordinated economic growth and financial risk management, thereby enhancing our understanding of the relationship between China’s financial markets and the real economy.