The Analysis Of Financial Crisis Contagion Path Based On Hierarchical Conditional Copula Theory

The financial crisis have fully showed its contagion in the sub-prime mortgage crisis and rhe European debt crisis. China’s stock market had been greatly affected, with a 60% decline of the SSE Composite Index, and resulted in a big loss. With the continually advancement of global finance integration, our country is bound to be more closely with the world’s financial markets. Studying the financial crisis contagion path would help strengthen the knowledge of financial crisis, against the contagion, and low the loss.This article is based on the sub-prime mortgage and the European debt crisis, which combines the theories and the empirical results to analyze the crisis contagion path between English, American, Chinese Taiwan, Japanese, Chinese Hong Kong and Chinese mainland stock markets. Firstly, the article expounded the theory mechanism of financial crisis contagion. Then this article analyzed there financial crisis of 1990s, get the contagion mechanism of the two crisis with comparing the former, and have the contagion paths. Thirdly the article uses empirical research method to study the lower tail dependences of the six Indexes standing for the stock markets. The date sample is divided into three sub-samples:before the financial crisis, the sub-prime period, the European debt crisis period. Compare the lower tail dependences, take it as the criteria of crisis contagion, and find the nodes by conditional Copula method. This paper uses the Granger causality test, GARCH model, Copula function.This article obtained after the European debt crisis, the theoretical analysis and empirical conclusion means that the bank debt contagion mechanism is main mechanism for the contagion among the six stock markets. Also there is a significant increase in the lower tail dependence of the Chinese stock market and other stock markets during the financial crisis. The financial crisis take Hong Kong stock market as a tool to contaminate Chinese mainland, Japanese and Chinese Taiwan stock markets. When compared with the sub-prime mortgage crisis period, stronger lower tail dependences of the four Asian stock markets appear in the European debt crisis period.