The role of dynamic measurement and early warning in China’s stock-market resilience: evidence from 28 industry sectors
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- China’s stock market resilience demonstrates a dynamic pattern of event-driven fragility followed by phased recovery.
- Heterogeneity in industry resilience is prominent: Banking and Utilities act as stabilizers, while Real Estate and Coal serve as risk sources.
- High resilience significantly suppresses inter-industry risk spillovers, and the LSTM model can prospectively identify low-resilience exposure periods.
This study quantifies the stock resilience of Chinese industrial sectors across two dimensions: absorption intensity and duration. Drawing on the theoretical framework of Yilin Chen et al, we estimate sectoral responses to shocks (proxied by the Chicago Board Options Exchange’s Volatility Index) using a time-varying parameter vector autoregression model. Our empirical results reveal significant time-variation in resilience, with sharp declines during the 2007–9 global financial crisis, the 2015–16 turmoil in China’s stock markets and the 2020–23 Covid-19 pandemic. We find substantial industry heterogeneity: defensive sectors such as banking are robust, while cyclical sectors such as real estate are vulnerable. Notably, the total correlation index (TCI) reaches 47.19%, indicating strong risk integration. Low-resilience sectors act as central transmitters in the Diebold–Yilmaz spillover network. Finally, a long short-term memory-based model effectively predicts low-resilience states, providing a tool for financial stability monitoring.
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