Research On The Volatility And Tail Risk Spillover Of China’s Stock Market

With the deepening of the globalization of the world economy and China’s reform and opening up, the financial market has become the core of economic development. The rapid development of economy leads to a large amount of financial risk, so it is important to understand and control the financial risk rationally and effectively. There are two main types of risk in financial markets.One is to represent the risk by constructing a suitable model, which is used to represent the volatility. The other is to measure the risk of financial assets at a certain probability level in the future.In spite of the volatility model and its application, it is necessary to select the appropriate model to ensure the accuracy of the volatility and risk for the characteristics of the distribution of the sample return rate, such as thick tail, negative bias. The introduction of economic policies, changes in the financial regulatory system and the financial market’s own perfection and other factors will lead to changes in the distribution of income. So, we establish the GARCH model, mixed normal GARCH model, regime switching GARCH model with mixture of Gaussian distribution, stochastic volatility model, stochastic volatility model based on mixed beta distribution to portray the return volatility. The empirical results show that the use of hybrid distribution can reflect the characteristics of the sample more reasonably.In fact, the volatility contains two aspects:the loss and earnings volatility. The essence of VaR is the quantile, which focus on the risk of a certain tail, and use a simple figure to describe the risk size. In order to analyze the relationship and transmission mechanism between domestic and international stock market risk, we study the sources of different market risk and the degree of influence using VaR, risk -Granger causality test theory and Byes quantile regression method because quantile regression is not necessary to make any assumptions about the overall distribution, but also can accurately describe the change range of the independent variable and dependent variable, and capture the characteristics of the upper and lower tail of the distribution. In this paper, we focused on the risk sources and characteristics of the tail return rate. Empirical research shows that the risk of China’s stock market is affected by the fluctuation of itself and the external market, but the degree of impact is different and asymmetric. In addition, the risk is proportional to the volatility.There are two main innovations in this paper. Firstly, this paper studies the risk of China’s stock market from two perspectives, how to describe the volatility reasonably and how does the tail risk conduct. Secondly, we establish the CVaR-Granger causality to characterize the interaction between different markets. By characterizing the causal relationship between the left tails of distribution, the source of the falling risk and the spillover effect is clearly described. On the other hand, through the characterization of the causal relationship between the right tails of the distribution, the source of rising risk is clearly demonstrated.