Abstract: The fast development of digital economy has led to larger demand for cryptocurrencies. While they brought clear benefits to the economic progress, cryptocurrencies have also shown significant impacts on financial markets. The volatility of global cryptocurrencies can potentially affect financial markets in China with increasing trends of financial openness. With this concern in mind, this paper aims to measure risk spillovers between global cryptocurrencies and financial assets in China, and then tries to identify the main factors linking systemic risks between financial markets in China and global cryptocurrency markets. Our results show that certain level of extreme risk spillover exists. In the long-term, volatility in the global cryptocurrency markets leads the risk spillover channels, but they receive limited impacts from financial assets in China. When we look at the short-term spillover effects, downward risks dominate upward risks. Meanwhile, market sentiment is shown to be the main factor explaining the systemic risk spillover found in this paper.

Key words: digital economy, cryptocurrency, financial assets, VaR, risk spillover network