Research Of Volatility Spillover Effects Between Stock Markets Under The Background Of European Sovereign Debt Crisis

This paper studies the volatility spillover effects of11country’s stock markets before and after the European sovereign debt crisis. Britain, German, France, America, China, Japan, Italy, Spain, Portugal, Greece, Ireland and the European stock market index were selected as the research object. Firstly, the original yield data of stock markets were analyzed by BEKK-GARCH model, but it only draws a rough conclusion of the11countries, the volatility spillover effects in different time scales can’t be seen, such as the volatility spillover effects of high frequency data and the long-term trend data. In order to study the volatility spillover effects of the11countries in different time scales, this paper make multi-resolution decomposition of the original data to get the high frequency data and the long-term trend data. Then model the high frequency data and long-term trend data by BEKK-GARCH model, get the volatility spillover changes in different time scales and analyze the characteristics of11country’s volatility spillover effects in different time scales.The commonly used multi-resolution decomposition method is wavelet decomposition, but the EMD method is better than wavelet transform because of its stronger local performance of data, it’s more effective when dealing with nonlinear, non-stationary signal. In order to illustrate that the EMD decomposition has better performance of the data, this paper compared the high frequency data of EMD decomposition with wavelet decomposition. The result showed that EMD decomposition was better than the wavelet decomposition for its stronger local performance of the data. The local performance capability of wavelet decomposition is not strong and the number of samples would be reduced half. The long-term trend which decomposed by EMD can clearly depict the data sequence because it’s monotone, but there is no obvious regularity of the low frequency sequence which decomposed by wavelet decomposition.The volatility spillover effects which got by the original data analysis is called the first level analysis, the volatility spillover effect analysis in different time scales is called the second level analysis. By comparing the two levels of analysis, the conclusion that Greece is the major exporter of European sovereign debt crisis, Portugal is the main transmitter, and America’s spillover effects with other countries was the strongest. But conclusion which got through the first level analysis the is rough, such as the conclusion that the spillover effects between "PIIGS" and USA, China, Japan has weakened on the whole, but the results obtained through the analysis of the second level is that the spillover effect of high frequency sequence between "PIIGS" and USA, China, Japan stock market appears irregular, while the spillover effect of the long-term trend is regular:the stock market linkage is stronger between Greece, Italy, Spain, Japan and USA, China, Japan. It still showed stock market’s linkage after the crisis. The spillover effects from Ireland, Portugal to America, China and Japan was weaker, but more influenced by the volatility spillover effects from America, China and Japan stock market to domestic.In addition, from the second level analysis of spillover effects, we found that some conclusions have not been got only through spillover effect analysis of the original return data. For EMD decomposition has stronger performance of the data, the conclusion from the second level analysis was more detailed. Such as the "vulnerability" of Chinese stock market and there are spillover effects of the long-term trend between USA and Britain, China and German, Japan and Britain, Britain and German stock market.It was found from the spillover effects analysis between the11countries that the more developed of a country’s economy, the more stable the financial market was. When the crisis happened, the country’s stock market produced more spillover effects to other countries, not only affected by other country’s one-way spillover effects. But our country is still in the development stage, and the financial market is "fragile". The spillover effect from Chinese stock market to other countries was significant before the crisis while it appeared not significant after the crisis and influenced more by the spillover effects from other countries after the crisis. Finally, development suggestions of the financial market were put forward according to the characteristics of our financial market.