Theoretical And Practice Study On Spillover Effects Based On Higher-Order Statistics

Financial integration and financial liberalization lead to closer financial linkages between countries (regions), making information transfer between markets more timely and effective. As a result, the global financial risks is becoming closely linked and quickly passed. Spillover effects in financial markets is a phenomenon about the conduction of market price, it means a market price is not only affected by its previous price, but also may be affected by other markets’ previous price. Research on spillover effects in financial markets help to understand the degree of integration of different markets and risk transfer mechanisms between the markets. Based on this, we can build an effective investment portfolio in the markets, to disperse and hedge financial risks. Therefore, with continuous improvement of the degree of China’s opening up, and capital market gradually integrated into the international financial markets, to investigate the risk of spillover between the international financial markets and resource allocation efficiency of the domestic financial markets has important practical significance.This paper takes financial volatility sequence data between September 2011 and December 2013 as sample, to study spillover effects between domestic and foreign stock markets, as well as spillover effects of domestic stock and bond markets. Current research mostly used econometric models, which can’t reflect the characteristics of real volatility in financial markets due to the constraints from the model assumptions and model set. Therefore, for non-Gaussian financial time series, this paper uses cross-cumulant method based on higher-order statistics to study the volatility spillovers’ time-delay and impact strength between the markets, which can avoid drawbacks caused by the use of econometric models, and lead to a more comprehensive study on spillovers. Meanwhile, this paper introduces a moving window sample method for robustness analysis of empirical results and trend analysis of dynamic relationship between financial markets.For awareness of spillover effects in international stock markets, this paper examines the volatility spillover effects between Shanghai market, Shenzhen market, Hong Kong market, U.S. market and United Kingdom market, conclusions are as follows:Firstly, there is a high degree of interoperability between the Shanghai and Shenzhen stock market, is also has a high volatility synchronization between mainland and Hong Kong stock market; Secondly, China’s stock market and the U.S., the UK stock market has always been relatively segmented markets, there is only one way of volatility spillover from international markets to china’s market; Thirdly, the relationship between China’s stock market and the international markets has undergone profound changes, which has two aspects of performance. One is the influence of China’s market has been weakened, the other one is that the impact of the international market is gradually increasing.For awareness of spillover effects in domestic financial markets, this paper examines the volatility spillover effects between stock and bond market. It is founded that there is only one way of volatility spillover from bond market to stock market, and the volatility spillover strength is high after April 2012. We can draw the conclusion that China’s stock market and the bond market remains relatively split, the information can not be freely transferred between the two markets.