The Predictive Power of Systemic Risk Indicators Under Extreme Scenarios

The authors examine the predictive power of systemic risk indicators for China’s listed financial institutions between 2008 and 2025. They analyse indicator performance from three angles: macro-level timeliness, market performance of financial institutions, and early warning of bank distress. The authors find that fluctuations in systemic risk indicators align closely with periods of financial stress, that these indicators can effectively predict declines in stock returns and increases in return volatility during stress periods, and that they can effectively predict bank distress. Comparing predictive power across forecasting horizons, they conclude that risk contagion indicators show the strongest cross-horizon stability, tail risk indicators offer the best medium-term early warning, and capital fragility indicators are best suited to contemporaneous warning, while capital structure indicators such as leverage and book equity ratio remain stable and accurate across all horizons. The authors conclude that systemic risk indicators and accounting-based capital structure indicators provide complementary early-warning information, and that their joint monitoring can strengthen multi-period early-warning capacity.