Research On Volatility Spillover Effect Between Financial Markets Based On Four-variable VAR-GARCH-BEKK Model

With the acceleration of economic globalization and financial liberalization, the relationship between financial markets is gradually enhanced, and this correlation can be showed by the significant market volatility spillover effect1'01. The volatility spillover effect reflects the entire financial system validity to some extent. On one hand, volatility spillover relations can provide relevant policies for the effective implementation of basic conditions. On the other hand, volatility spillover effect makes various risks in the market spread rapidly and even makes the risks evolve into financial crisis. Recent years domestic and foreign researches concerned with volatility spillover effect have gained many meaningful conclusions. From the literature we can see that researchers mostly discuss the volatility spillover effect between two markets using two-variable GARCH model, without considering the fund market, and they suppose the residual series obey multivariate normal distribution. In fact, the fund market has developed quickly recent years, becoming an important part of financial market. Besides, as to the methods using in researches, it's better to include all markets in the model so as to get better results to reflect their relations.Based on current literature, this paper uses four-variable VAR-GARCH-BEKK model to discuss the volatility spillover effect between the money market, the stock market, the foreign exchange market and the fund market, supposing the residual series obey multivariate T distribution. And factors that affect volatility spillover effect are analyzed in this paper.The first part as preface elaborates the selected topic significance, domestic and foreign literature about the research question, the research content and originality, and article structure. Part two gives a introduction of theoretical knowledge and models used in the article, including concept definition of volatility, BEKK model and so on. Part three is the empirical analysis of volatility spillover effect between four markets using four-variable BEKK model. First, basic statistic is given, then mean equation and variance equation are estimated, and last step is the test of volatility spillover effect using Wald statistic. Part four analyzes the factors that affect volatility spillover effect, first giving external causes of volatility spillover effect and explanation of behavioral finance. Then empirical analysis is given using the data in this article. The last part is a conclusion of this article and corresponding policy.This paper has drawn several conclusions which are as follows:1. The money market and the foreign exchange market have significant mean spillover effect to the stock market. The money market has significant mean spillover effect to the foreign market. The money market and the stock market have significant mean spillover effect to the fund market.2. The correlation coefficients between four markets are dynamic. And the correlation coefficient between the stock market and the fund market changes with time, while others don't.3. The volatility spillover effect between the stock market and the fund market is due to collective factors, while the volatility spillover effect between other markets is due to other reasons such as market transmission.This paper helps investors escape risks, and does good to governments to make policies and provide suggestions. Its shortcomings are that the choice of market index and the research range is not so reasonable.