A Study Of Volatility Spillovers Between China’s Gold Market And Stock Market

Gold market and the stock market is the most important part of China’s financialmarkets, In a multi-level market with diversified financial investment products,Investors face more choices and also more wary of the hidden market risk. In the"post-crisis era" with increasing risk in the financial markets、high Inflation, globaleconomic recovery slowly、the European debt crisis has not been fully resolved andthe intricate external environment, Investors have to choose investment targetscorrectly and timely hedging. And china’s stock market continued in downturnrecently, At the beginning of2013, the gold market fell sharply, making people beganto re-examine the Volatility between gold market and stock market.Firstly, we studied the historical development of the gold market and the stockmarket, the volatility of the two markets, as well as the factors that cause volatility.Then we explained the volatility spillovers from the perspective of modern financeand behavioral finance theory, and we chose daily closing price of the ShanghaiComposite and Au9999as the sample from November1,2003to November1,2013,and we established ARCH model, GARCH model, Granger causality test and BEKKmodel to do empirical analysis. The results showed that:(1) The return series of two markets showed fat tail characteristics, and had significant ARCH effects withsignificant volatility and aggregation.(2) The volatility of stock market was moreintense than gold market, and suffered a longer impact and smaller risk compensation,which meant that the risk of stock market was higher than gold market.(3) the returnseries of two market had ARCH effect and GARCH effect, and GARCH (1,1) modelcould eliminate conditional heteroskedasticity effectively, the coefficients of ARCHand GARCH all closed to1in the variance equations, which showed the impact onthe conditional variance has a strong continuity. And the coefficient of stock market isgreater than gold market which showed stock market suffered longer impact.(4) Thevolatility of gold market and stock market were asymmetric, that is the impacts of"good news" and "bad news" on the return series were not the same in both of the twomarket, Where stock market was more sensitive to "bad news" while the fluctuationsarising from "good news" was greater in gold market.(5) From the Granger causalitytest and BEKK model, we found the asymmetric volatility spillovers between goldmarket stock market, and the volatility of stock market might affect the price changesof gold market, while the fluctuations in gold market would not affect stock market.