Risk of Internet Money Market Funds and Its Spillover Effect: Based on La-VaR, DCC-GARCH and Minimum Spanning Tree

Abstract

<p>Internet money market funds (IMMFs) are China’s most wildly participated Internet financial products. This research mainly focused on the liquidity risk of IMMFs by establishing a La-VaR model with the cost of unit liquidity and further discussed the liquidity risk spillover between different IMMFs with La-VaR and minimum spanning tree algorithm. The results show the following: (a) The proposed La-VaR model is superior to the conventional VaR in evaluating the liquidity risk of IMMFs. The case study on Yu’E Bao also proves its superiority. (b) IMMFs with greater yield volatility face more significant liquidity risk pressure. (c) Risk spillover effects exist in IMMFs, and IMMFs with an extensive fund scale are more likely to spread liquidity risk to the entire market.</p> <p> </p>