A Study On The Risk Spillover Effect Between Securities Markets Based On Cross-Spectral Analysis And Band Spectrum Regression

Due to the acceleration of financial integration and liberalization since 1990s, the relationship between China's financial market and the world's financial system is becoming much closer, which at a much extent promotes the improvement and development of China's securities market. But in the meanwhile, international financial crisis break out more frequently, and have new characteristics as the area of its influence extending more widely. As one of the major part of financial market, the risk spillover effect between China's securities market and international securities markets has become more and more prominent. The outbreak of the sub-prime mortgage crisis recently in the United States has evolved into a global financial crisis in a very short time and results in huge shock in global financial market.It is very difficult to discribe dynamic relation between markets and the inherent rules of risk spillover using traditional time-domain analysis methods. To improve the analysis of risk spillover between financial markets, from frequency-domain point of view, cross-spectral analysis and band spectrum regression are employed to explore the risk spillover effect between China's securities market and U.S. securities market.The risk spillover models and techniques, as well as its development are firstly reviewed in this paper; application of frequency-domain analysis methods in risk spillover field is summarized. Then the mechanism for risk spillover is explored, the definition, reasons, channels and characteristics of risk spillover effect between securities markets are analyzed. Based on it, risk measurement technical, cross-spectral analysis and band spectrum regression are introduced. Then risk measurement of securities markets are empirically researched during financial security period and crisis period respectively, risk spillover effect between China's and the U.S. securities markets is also empirically examined. The results indicate unobvious risk spillover between China's and the U.S. securities markets in financial safety period and a strengthened risk spillover effect for the two securities markets caused by the sub-prime crisis. In crisis period the direction of risk spillover is discovered to be mainly from United States securities market to China's securities market in the long term.