An Empirical Study On The Volatility Spillover Effect Between Firms Of Different Size In China's Stock Market

Volatility research is the foundation of qualitative analysis in the financial field. Many scholars have put forth great efforts in building and developing mathematical models in order to describe equity's volatility. This paper analyzes stock index with different sizes of listed companies, and researches the volatility spillover effects between different sized firms' stock indexes.Firstly, the paper introduces the research background related to spillover effects. The study of size effect is also presented under the framework of EMH and behavior finance. To describe financial market volatility, the paper focuses on some mathematical models, including ARCH and GARCH models.Secondly, the paper chooses the"JuChao Scale"stock index as the research object, using correlation analysis and the granger causality relation test to analyze the relationship between return rate and volatility. The relationship between liquidity and return rate in the stock market is also handled with the panel date regression method. The results illustrate that there is a positive correlation between yield and trading volume, early trading volume and yield can forecast a better sense for the current trading volume.Lastly, based on the Full-BEKK(1,1)-T model, volatility spillover effects among different size firms are examined. The model parameters and dynamic correlation coefficient diagrams can reflect the time-varying characteristics of the volatility spillover effect. They can also reveal different market shares in the allocation of resources and information flow, such as the characteristics and dependencies. The results show that there is a significant volatility spillover effect between the overall market and the large-sized firms. When the security price of large-sized firms increases the volatility of the overall market fluctuations, the overall market will reduce the fluctuations of large-sized firms' security price. It seems that there is a regulation mechanism in China's financial market which can help to prevent a major collapse.