Risk Spillover Effect Of Realized Higher Moment Under Markov Transformation

Risk spillover effects describe a phenomenon in which different regions and different types of financial markets' fluctuations affect each other and risk transfer between markets.That means a market's volatility is not only affected by its own historical situation,also interfered by other markets' changes.There are many reasons for risk spillover effects,including macroeconomic factors such as global integration,financial innovation,etc.,but also micro-factors such as heuristic bias and herding effect.The research on risk spillover is mainly focused on second-order moment risk,that is,volatility risk spillover,and research about the spillover effect of higher moment risk is not easy to see.As we all know,the price of financial assets has obvious bias thick tail,which means that there is a clear third-order and fourth-order risk.When study risk spillover only considering volatility spillover is incomplete,we must further study the skewness and kurtosis risk spillover.Studying the risk spillover of higher moments can not only provide more perfect theoretical support for asset allocation and asset pricing,but also allow regulators to consider more comprehensive policies to control financial risks and maintain the stability of financial market more effective.In this paper,the risk-spillover effects of stock markets in the Mainland,Hong Kong and Taiwan,based on the high-order moments extracted by the realized method,uses the Markov Regime switching-multiple regression model which is widely used in the study of the risk spillover effect.Compared with the traditional parameter method,realized method's asset price process requires no complicated specific form of assumptions,and high-frequency financial data contains richer information.The study shows that the risk transmission path between stock markets is inconsistent in different regimes;the realized higher moments of the CSI 300 index have a one-way risk spillover effect on the realized higher moments of the HSI and TWSE index;the realized higher moments of the HSI index and the realized higher moments of the TWSE index are mutually influential;In addition to the spillover of volatility risk,the risk spillover of other moments(eg skewness and kurtosis)can not be ignored.Then the article provides policy recommendations for regulatory authorities and investors in financial markets,also identifying some areas where the article can be refined.