The Volatility Spillover Effects Of The Sector Indexes

Diversification of investment has lead to more interaction in different sectors and between financial markets increasingly. It's extremely important for investors to understand the relationships of different sectors. Investors can judge the size of changes in other sectors according to the direction of the impact and influence. And then carry out effective risk prevention and investment management. So financial markets participants are more and more interested in knowing how shocks and volatility are transmitted across markets over time.Volatility spillover effect is that the volatility of a market not only be influenced by their early fluctuations, but also by the historical volatility of other markets. From the perspective of venture capital and management, inter-industry spillovers price will bring additional investment and risk management. In order to disperse, dissolve, transfer the risk of such a linkage is often necessary to research the spillover effect between the different sectors. Such can achieve a combination of assets, risk hedging, the market management. So, researching the characteristics of different sectors volatility spillover effects is important for the study of the structure of China's securities market, portfolio, risk measurement and management, asset allocation, policy regulation.This paper selects the Chinese stock market's manufacturing, the real estate, finance, petrochemical four industry index return series for the study data, they divided into six groups with two and two in one group, establishing a diversity of GARCH model for volatility spillover analysis. The time interval:July 3,2001 to July 16,2010, a total of 2190 data.In the first part is an introduction, a simple introduction to the topics, background and volatility spillover GARCH Model Research at home and abroad, Then introduces the univariate GARCH model development. In the second part describes some of the test methods theoretical and the multivariate GARCH model in detail. The third part is the empirical part, at first introduced the sources of data and indicators which measure of volatility, and then use these indicators to measure the statistical characteristics of each industry index, Then using the ADF and PP test methods to test the sequence of all the stationary rate of return, and each sequence used in ARCH model to determine the wave characteristics. Then for each industry index return series, the GARCH model has been made. Every model estimation results were analyzed. In the fourth part discusses the inter-industry volatility spillover effects of the real economic significance, and accordingly put up some proposals. This will help the readers have a preliminary understanding of the impact of transmission between the different sectors and reducing the risk.Through model to every sector return series, we can get the following conclusions:the volatility of the four industries is subject to significant fluctuations in the value of their own early, with the clustering of volatility and strong sustainability. Between the different sectors have significant volatility spillover effects.Innovation of this paper is:very little research has been hit the same relationship between the different sectors of the stock return, not to say using the M-GARCH model. This paper attempts to research four pillar industries'spillover relationships in China's stock market returns, to fill existing gaps in the documentary. Researching on the volatility relationships between different sectors of the stock return can help to achieve effective distribution of financial assets and the establishment of industry revenue model. Its findings can provide a useful reference on how the stock market volatility spread between the industry and the general investment portfolio investors and banks.Shortcomings of this article are that focusing on the perspective from the empirical study of the industry Volatility Spillover. Then the theoretical analysis was not enough; In addition, the analysis of inter-industry volatility spillover remains to be further in-depth research, we can use a variety of models (such as DCC model) from different angles to research. With the limitation in space and time, this article does not contain these.