An Empirical Study On Volatility Spillover Effect Among Domestic Stock Market And Foreign Stock Market Based On GC-MSV Model

With the deepening of the global economy integration, fundamental changes have takenplace in financial markets. Fluctuations among the world’s major stock market present acoordinated variation trend. Study on volatility spillover effect between domestic and foreignstock market can help understand the transmission direction and path of the stock marketvolatility, which can eventually help investors to avoid risk and make short-term predictionsbefore the foreign market volatility impacts the domestic stock market.Stochastic volatility model is one of the main tools to study volatility spillover effect atpresent. As the parameters of SV model is rare illustrated in the literature, therefore it’scomparatively difficult to estimate. With the rapid development of computer technology, theproblem can be resolved by adopting Markov Chain Monte Carlo method and combining withWinBUGS software. This paper estimates the model parameters by using GC-MSV modeland Markov Chain Monte Carlo algorithm method based on Gibbs sampling and combiningwith WinBUGS software. This article observes and analyzes the external risk source ofChinese stock market and changes of the volatility spillover effect through the comparativestudy on the changing situation of volatility spillover effect among the stock market of China,the United States, Japan and Hong Kong before and after2010.With the help of modern volatility modeling theory and measurement method, this papermakes in-depth research of the regular pattern of the stock market volatility spillover. Takenthe December31,2010as the cut-off time, the empirical results found that before2010, onlythe stock markets of Hong Kong and the United States exist one-way volatility spillovereffects on China’s stock market; After2010, not only the stock markets of Hong Kong and theUnited States exist an increasing one-way volatility spillover effects on China’s stock market,but also that of Japan’s stock market effects the China’s stock market.However, the volatility spillover effect of China’s stock market on Hong Kong stockmarket exists only after2010. From the point of the entire sample interval, there is novolatility spillover effect of China’s stock market on that of the United States and Japan all thetime, while the increasing of the coefficient of granger causality illustrates that China’s stockmarket is giving more impact on other stock markets. Meanwhile, there are always two-way strengthening volatility spillover effect among the stock markets of the United States, HongKong and Japan in the whole sample interval. As a whole, after the U.S. subprime mortgagecrisis, the volatility spillover effect of the United States, Japan, Hong Kong on China’s stockmarket is increasing, also the volatility spillover effects of China stock market on other stockmarkets are strengthening.