Research On The Contagion Effect Of China's Financial Market Based On Quantile Regression

Chinese stock market experienced an unusual “crash” in 2015,which exposed the fragility and instability of the financial market of China.The stock market risk erupted after accumulated to a certain extent,and the financial contagion exacerbates cross market transmission of the risk,causing the market's continuous severe fluctuation.Financial contagion refers to the change of price in a financial markets caused by asset price fluctuation of other financial market.The financial contagion effect exists not only in the different capital markets of a country,but also in the stock markets of different countries.The financial contagion is a double-edged sword,in a tranquil period,the financial contagion promotes market correlation and capital flow,and is conducive to the allocation of capital resources,while in the turmoil period,the financial contagion accelerate the spread of the crisis,aggravates systemic financial risks,and even leads to catastrophic events.In the context of the global economic integration and the financial liberalization,the channel of financial contagion is more concealed,the measurement of financial systemic risk is more complex,and the impact of the financial crisis is more far-reaching.The study of the contagion relationship of China's financial markets can not only help us to recognize the current situation and context of the development of China's financial market,to prevent the systemic financial risks,but also provide useful reference for investors to improve their portfolio returns.The essence of the contagion effect of the financial market is the risk contagion,that is,the risk of one market is transmitted through the contagion effect to another market,causing the change of another market risk.The Value at Risk(VaR)proposed by J.P.Morgan in 1994 is the mainstream method of risk measurement,this paper studies financial contagion from the perspective of the Value at Risk.The Value at Risk is usually measured by the loss of the asset return of the financial market.The return rate of financial market has the characteristics of leptokurtosis,fat-tail and non-normal distribution,and Quantile regression can fully captures the extreme market information of the fat tail and partial distribution,has important application value in risk management.Therefore,based on quantile regression method,this paper applies multi-quantile conditional autoregression value at risk model(MVMQ-CAViaR)to empirically study the extreme risk contagion and nonlinear correlation in Chinese financial market.In this paper,the study of financial contagion is carried out through two dimensions of time and space.On the aspect of time dimension,taking the stock market crash in June 15,2015 as a node,the whole sample interval is divided into tranquil period and abnormal fluctuation period,and this paper finds the financial market contagion in the period of abnormal fluctuation is significantly higher than that in the tranquil period;In terms of space dimension,according to the different main body of the financial market,the financial contagion is divided into different types,such as contagion between different stock boards,different industries,stock market and bond market,stock market and foreign exchange market,stock market transnational(regional)contagion and so on,and empirical analysis and theoretical discussion are carried out thereafter.The first chapter elaborates the main problems of this study,and introduces the research framework,research methods,main innovation points and shortcomings of this paper.The second chapter reviews the important theories of financial contagion and the related literatures from both home and abroad,and makes a comment on the existing literatures.Then,the third chapter gives a detailed introduction of China's stock market,bond market and foreign exchange market from three aspects of market development,market characteristics and market function.In the fourth chapter,the first two section introduce the research methods including linear quantile regression,MVMQ-CAViaR(1,1)model,Wald test statistics and quantile impulse response,and the third part is an empirical study on the Chinese multi-level stock market contagion relationship,which means the contagion between the main board,SME and GEM.The results show that there is a risk contagion between the main board and SME/GEM,specifically,the main board return declines,followed by the decline of SME and GEM return,in turn,the returns of SME and GEM are negatively correlated with the main board returns.The forth section analyses the causes of contagion between the different board from two aspects of basic factors and investor's emotion factors.The fifth chapter studies the risk contagion between the main board and 11 industries including the material,telecommunications services,real estate,industry,public utilities,finance,discretionary consumption,energy,daily consumption,IT and healthcare industry.The results show the industry and energy industry has contagion effects on the main board market,and the main board market is contagious to the real estate industry.This chapter also selects basic industries such as finance,utilities and energy as the source of contagion,and finds that the real estate and daily consumption industries are most vulnerable to the risk contagion of the industries mentioned above.Finally,this chapter discusses the causes of industry contagion from two aspects of the impact of the economic cycle and the structure of the upstream and downstream industry chain.The sixth chapter studies the risk contagion between the stock market and Treasury bond,enterprise bond and corporate bond market respectively,and finds that the bond market has a one-way contagion to the stock market.In a stable period,the enterprise bond market has a positive impact on the stock market,and it has a co movement effect.In the abnormal fluctuation period,the enterprise bond market has a negative impact on the stock market,it has asset substitution effect between them,while the Treasury bond and corporate bond market has a positive contagion on the stock market.The seventh chapter studies the risk contagion between stock market and foreign exchange market,and finds that there is a one-way contagion from onshore exchange rate to the stock price,and the offshore forward exchange rate and stock price have two-way contagion,and the depreciation of RMB against dollar is negatively correlated with stock price,which is in line with the portfolio substitution effect.The eighth chapter studies the contagion between Chinese stock market and Hongkong,Japan,Singapore,the United States,the UK stock market from 2002 to 2017,finds that China's stock market has international(regional)contagion with time-varying characteristics,i.e.before the 2008 subprime crisis,Chinese stock market has a one-way transmission of contagion on the Singapore stock market;during 2008 to 2011,the Japan's stock market has a one-way contagion on China's stock market,and since June 2015,China's stock market has one-way contagion on the U.S.stock market.Finally,this chapter analyzes the causes of transnational(regional)contagion in China's stock market with trade channels,financial channels and net contagion channels.The ninth chapter summarizes the full text,and gives the corresponding policy suggestions and research prospects based on the findings of the research.From the above empirical research,this paper draws the following new findings and conclusions.First,the financial contagion effect in China's stock market is significantly enhanced compared with the stationary period during the abnormal stock market volatility in 2015,and the financial contagion effect exacerbated the stock market crash process.Second,the China's stock market has unprecedented influence on the US stock market since 2015 and also plays an increasingly important role in the global financial system.Third,the development of China's industry and energy industry has an important role in the real economy,and the shock of real economic impacts mostly on the real estate industry.Fourth,as for the financial market reform,the market positioning of the main board,SME and GEM needs to be further clarified;Compared to the enterprise bond market,the price discovery function and the market function of Treasury bond and the corporate bond market needs to be further improved;The market reflection capacity of the onshore exchange rate of RMB against the US dollar is weaker than the offshore exchange rate,the exchange rate system reform is still the important development direction for the foreign exchange market.As a country with a socialist market economic system,China has its own unique and institutional advantages on the financial supervision compared to other countries.If the deepening reform of the financial system has not increased the financial systemic risk while has promoted the resource allocation of the capital market,it is an improvement of Pareto.In this paper,the following policy suggestions are put forward: first,to increase the information disclosure of the stock market and develop the derivative market;two to strengthen the interconnection and intercommunication between the exchange bond market and the interbank bond market;the three is to suppress the stock market bubble and real estate bubble,to prevent the financial systemic risk;four is to promote orderly the opening up of the financial industry to the outside world,strengthen the prevention of global financial risks.