The Contagion Of The Stock Markets During Financial Crisis

With the continuous deepening of global economic integration, links between various markets have gradually enhanced. The opening of the markets brings the vitality into the markets. On the other hand, it also increases probability of the crisis in the same time. Once the financial crisis happens in one market, due to the increased linkage between markets, the crisis will spread easily from one market to another. And that will finally result in large-scale economic loss, which can be illustrated by the 2008 global financial crisis. Therefore, the research on contagion during the financial crisis has become such an important subject in current academia.The contagion between the international stock markets and the domestic stock markets during the 2008 global financial crisis has been evaluated and analyzed in this paper utilizing the dynamic conditional correlation analysis, Granger causality test and GJR-GARCH model. And there are two main findings in this research. Firstly, in the global stock markets, the United States market, as a major source of contagion in the crisis, has unidirectional contagion effect on most of the other markets. However, the markets in East Asian and Pacific region are the main recipients of the contagion effects during the 2008 global financial crisis. This phenomenon may be related to the maturity level of the markets. And China’s stock market mainly receives contagion from Europe and East Asia-Pacific regions. And the contagion effect is regional. Secondly, in the domestic industry markets, the correlation between CSI 300 Index and the vast majority of industry markets did not increase during the 2008 global financial crisis. As industries of important weight of the total stock index, financial real estate industry and energy industry virtually have no transport of contagion with other industries. The public utility industry and information technology industry are not affected by the contagion of other industry markets. Telecom industry is only received contagion effect by the public utility industry. And the raw material industry, industrial industry and consumer and alternative industry are the major recipients of the contagion effect.Abnormal fluctuation occurred in China’s stock market in June the 2015. Thousands of shares fell down by their daily limit in several days, then developing into thousands of suspension to protect the market. Facing the violent volatile in the stock market, the government immediately took a series of measures to rescue the market, but unfortunately most of bailout measures have little effect. Therefore, this paper studies the phenomenon of abnormal fluctuations in the stock market in 2015 from the perspective of contagion. The results show that there are severe contagion effects among domestic industry markets, and CSI 300 index has unidirectional contagion effect on all the industry indexes except financial real estate industry and energy industry. After taking it into account that CSI 300 index has a significantly increasing correlation with most industry indexes and adding the factor into the model, the contagion effects among most industry markets disappear. This means that the increasing influence of the overall market trend, rather than just the contagion, leads to the enhancement of correlation among industries in 2015, which is completely different from the 2008 global financial crisis.