TITLE:
Study on the Extreme Risk Spillover between China and World Stock Market after China’s Share Structure Reform
AUTHORS:
Liangyu Wang
KEYWORDS:
Volatility, Granger Causality Test, Extreme Risk
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.3 No.2,
June
12,
2014
ABSTRACT: With the rising
importance of China’s role in the world economy, the Chinese economic
fluctuation has become a more and more significant factor that influences the
world economy. Therefore, it is an interesting issue for all circles as well as
academicians that whether the real economic inter-connection leads to
volatility spillover between China’s and international stock markets. In this
paper, CGARCH (Combine Generalized Auto Regressive Conditional Heteroskedasticity)
model and Granger causality test are applied to examine the relationship
between China’s A share index and world’s major indices with respect to the
extreme risk spillover effect. The results show that the extreme
risk of A share market’s long-run volatility component has strong risk
spillover effect on foreign markets, while the short term volatility is vulnerable
to the risks from overseas. Since long-run volatility component is consistent
with real economic cycle, our results support that China’s economy has deep impact
on world economy.