Measuring Systemic Risk in China : A Textual Analysis

This paper develops a systemic risk index for China (SRIC) using textual information from 26 leading newspapers in China. Our index measures the systematic risk from 21 topics relating to China’s economy and provides narratives of the sources of systemic risk. We examine the predictability of SRIC for China’s macroeconomic variables. The results show that SRIC effectively predicts changes in GDP, aggregate financing to the real economy, and the purchasing managers’ index. Moreover, SRIC explains several other commonly used macroeconomic indicators. Our risk measure is a helpful monitoring tool for policymakers to manage systemic risk