Research Of Effects Of Mean And Volatility Spillover Between China's Financial Markets

Since 1990 s,with the rapid development of the global economy,the financial crises happened frequently.During the crises,the volatilities of prices of financial assets in the affected areas significantly expanded,and the effects between different markets significantly enhanced.Foreign scholars in the studies of spillover effects between financial markets are more concentrated in Europe and the United States and other developed regions as well as South Korea,Africa and other emerging economic regions,and the period of the studies mainly focused on the European debt crisis period.The studies of the spillover effects between domestic financial markets are still relatively lacking,at the same time taking into account the fact that the linkage between the domestic financial markets and the international financial markets is weak,but the correlations between the domestic financial markets are relatively large,so this paper put the domestic financial markets into a whole framework and analyzed the spillover effects between the domestic financial markets.This paper first described the development pattern of the global economy in the past 30 years.Then we focused on spillover effects between the financial markets by display their changes in several major economic crises,and emphatically introduced our research methods and innovation points.In theory,we reviewed the domestic and foreign literatures and classified the research methods about spillover effects between different countries or financial markets,which laid the foundation for our selection of the generalized predictive error variance decomposition method based on the VAR framework.Before the empirical analysis,we defined the mean and volatility spillover effects.Considering the present development status of China's financial markets,we also analyzed the transmission mechanism between financial markets in the framework of financial market linkage theory,entity economic connection and extreme risk situation.In the empirical analysis,we incorporated the stock,bond,foreign exchange,currency and gold market into a whole framework,and synthetically used VAR and generalized predictive error variance decomposition methods to analyze it.We constructed the spillover effects index to analyze the direction and intensity of spillover effects between different financial markets and got the following results: First,the stock,currency and gold markets were the main markets which give the spillover effects to other markets,while the bond as well as the foreign exchange market were the main markets which received effects of mean and volatility spillover from others.Second,from the perspective of the mean spillover,the impact of foreign exchange and gold market were dominated before the crises;during the subprime mortgage crisis,the average levels of the stock and bond market mean spillover significantly increased,while the effect of the gold market declined;during the European debt crisis,the average spillover effects of each market is basically the same;the average spillover effect of each market in the post-crisis stage is significantly decreased.Thirdly,from the perspective of volatility spillovers,the volatility spillover of the currency,bond and foreign exchange market before the crises were significant;during the subprime mortgage crisis,the level of volatility spillover of the stock and gold market increased significantly,while the effects of volatility spillover of the money market decreased;during the European debt crisis,the stock market's spillover level dropped sharply and the spillover level of other markets are basically the same;the spillover level of the stock market rises significantly and the volatility spillover level of the gold market drops sharply in the post-crisis stage.Fourthly,from the perspective of total spillover effects,the mean spillover level had a tendency to rise first and maintained a high level in the crises stage,then fell in the whole time period.In contrast,volatility spillover effects increased during the subprime mortgage crisis,but the total volatility spillover effects decreased during the European debt crisis which was lower than it in the pre-crisis stage;the total volatility spillover level in the post-crisis stage was lower than it in the pre-crisis stage.Finally,combined with the theoretical analysis and empirical analysis results,we put forward the following suggestions on the construction of China's financial markets: Personal and institutional investors need to appropriately consider the spillover effects between financial assets in the asset pool,and consider the uncertainty of the spillover effects between the financial markets in different investment status period,then make a reasonable arrangement of capital allocation in order to achieve the ratio of the expected return and risk.Government need to fully consider the linkage and transmission between different financial markets when in the research on the fiscal or currency policies.Government need to fully forecast the enlargement of spillover effect when there is a consistent tend in spillover effects,and also need to avoid the spillover effects offsetting each other.Regulators need to monitor the financial markets in three layers: market to market;single market to whole market;the whole market.