Abstract: Prevention and resolution of systemic risk is the most important task of China advancing comprehensively financial management and governance capacity building. However, when asset price bubble rapidly breaks the threshold, systemic risk can easily break out instantaneously easily. This paper reinterpreted generation logic and evolutive path of systemic risk in capital market from the perspective of the process of accumulating and releasing of risk, and then established MS-VAR model empirically examined internal driving mechanism between investment sentiment and asset price bubble and regime switching effect. The study finds that internal driving mechanism between investment sentiment and asset price bubble doesn’t necessarily lead to systemic risk. China’s capital market is in the state of low risk for a long period of time, but bubble transfers easily from expansion regime into burst regime. Therefore, our country’s regulatory authorities should build risk emergency governance mechanism in line with China's own characteristics, slow down the speed and extend the duration of risk release and deal with the risk state transition caused by unexpected shocks.

Key words: Systemic Risk; Investment Sentiment; the View Threshold of Regime Switching；Asset Price Bubble