The Study On The Volatility And Transmission Mechanism Of The Greater China Region Stock Market

This article selects GARCH-M model, EGARCH model of the GARCH models to analyze the risk premium and leverage effect in the stock market volatility of Greater China region respectively. By using VECH-GARCH, DCC-GARCH and BEKK-GARCH model of the multivariate GARCH model, the article analyze the correlation, dynamic linkage and transmission mechanism among the Greater China region stock market, respectively. The results show that the Greater China region stock market exist a positive risk premium and the significant leverage effect; The mutual influence between the stock market is lasting, and completed after the share reform in2006, the mainland stock market and offshore market have a significantly relevance; only exist unidirectional transmission mechanism from the mainland market to overseas markets, and among the mainland and Hong Kong and Taiwan stock market exist the bidirectional transmission mechanism. Therefore, the study of Greater China region stock market volatility and its transmission mechanism can be a variety of depicting the connotation of Greater China region stock market volatility, and enriched our country about the research of the stock market volatility and the theory of the relationship between the fluctuations. And systematic research for Greater China region stock market volatility and its transmission mechanism, can not only for across regions of the vast number of investors to build diversified portfolio, guard against and avoid financial risks and provide powerful reference, but also provide valuable reference for the relevant departments to formulate and implement the macro financial policy. So in this paper, the study of Greater China region stock market volatility and the transmission mechanism has important theoretical and practical significance.Analyze the risk premium of stock markets of the Greater China region by using a GARCH-M model. The result shows that all of the stock markets have positive a risk premium, especially of Shenzhen stock market. While increase the risk for one unit,1.1939、0.5630、0.4104unit of profit is returned in stock markets of Shanghai and Shenzhen. The more risk, the more profit. This indicates that generous return on investment does exist in mainland stock markets and people who choose to invest in the mainland may get richer profit than people that choose to invest in Hong Kong or Taiwan under the same condition.By using EGARCH model to analyze the leverage effect of Greater China region stock market. It indicates that all have obvious leverage effect, and when the same good news announced, Shanghai stock market tops the list of volatility of stock markets, followed by Shenzhen, Taiwan, Hong Kong. As to the bad news, volatility of Shanghai stock market rank the first, followed by markets of Taiwan, Hong Kong, Shenzhen. And the same good news has lesser impact on stock markets than that of the bad news. According to the result of EGARCH model, we draw the news impact curve and find the curve is asymmetric and the left side of the curve is steeper than the right side. It means that, when good news have a greater impact on the volatility of the Greater China region stock markets. In other words, stock markets respond more strongly to the bad news.Using multivariate diagonal VECH-GARCH model to analyze the relationship between the four stock markets, the result shows that the interaction between the daily yield fluctuations of the markets is permanent, volatility of the markets show a convergence phenomenon. The result of the DCC-GARCH model, which is used to study the dynamic linkage, shows that after share reform completed in2006, the relationship between stock markets of mainland and Hong Kong have been significantly improved, and share reform have positive effect on the development of the markets of the Greater China region. The relationship between stock markets of the mainland and Taiwan has been greatly improved after the completion of share reform and the implement of cross-strait policies. And the correlation of Hong Kong and Taiwan stock market is strongly influenced by international market.By using the multiple asymmetric BEKK-GARCH model to analyze the volatility spillover effect among the four stock markets throughout the Greater China region so as to obtain the transmission mechanism within them. The results indicate that upon the selected significance level, there is a bidirectional transmission mechanism between Shanghai stock market and Shenzhen stock market, while a unidirectional mainland-to-overseas transmission mechanism among the Shanghai and Shenzhen stock markets and Hong Kong and Taiwan stock markets. On the other hand, a bidirectional transmission mechanism is developed between Hong Kong stock market and Taiwan stock market. Therefore, it signifies as follows:in the stock market within the Greater China region, the mainland Chinese stock market has an increasingly greater impact on other stock markets; effects on mainland China’s stock markets from other stock markets has become less significant; the mainland stock markets are relatively heavily influenced due to their own factors. The paper analyzes the reasons and presents some relevant proposals in the final part.