Volatility Spillovers Between China's Stock Market And World's Major Stock Markets

In the context of economic globalization and financial integration,the linkage and dependence of economic activities between countries and regions around the world have gradually increased.As the "barometer" of a country's(region's) economic development,the stock markets around the world are increasingly interconnected.The fluctuations in a stock market are not only affected by its own historical fluctuations,but also by the fluctuations in other stock markets,resulting in volatility spillover effects between the world's stock markets.Since joining the WTO at the end of 2001,China's economy has gradually been in line with the world.With the split share structure reform and the introduction and further liberalization of restrictions on the QFII and QDII systems,China's emerging stock market is gradually opening to the outside world.Especially in recent years,with the improvement of comprehensive national strength,the international influence of China's stock market is rapidly increasing.The volatility spillover effect between China's and the world's stock market has always been a double-edged sword.Especially during the financial crisis,international financial risks are contagious among the world's stock markets,exacerbating the instability of China's stock market and the international financial market.At the Central Economic Work Conference in 2018,it was clearly proposed to prevent abnormal fluctuations and resonances in financial markets.Therefore,it is of great significance to study the volatility spillover effect between China's and the world's stock market.Regarding the existence mechanism of volatility spillover effects between different stock markets,there are currently two mainstream explanations in the academic circles: one is the economic fundamentals hypothesis,and the other is the market contagion hypothesis.This paper sorts out related concepts and theories,and analyzes the existence mechanism of the volatility spillover effect between China's and the world's stock markets based on the economic fundamentals hypothesis and the market contagion hypothesis respectively,and proposes a hypothesis: there exist volatility spillovers between China's stock market and the world's major stock markets with obvious characteristics of phased changes.Therefore,based on domestic and overseas related studies,this paper selects the US,German,Japanese,and Hong Kong stock markets as representatives of the world's major stock markets.Based on sample data from 2002 to 2018,the BEKK-GARCH model is applied to comprehensively investigate the dynamic changes in volatility spillovers between China's stock market and world's major stock markets using full sample,phased samples and rolling window approach.In addition,due to the long time difference between China and the United States or Germany,this paper also takes into account the time difference factor between trading hours in different stock markets to distinguish the direction of volatility spillovers,thereby making the empirical results more of practical significance.The empirical results show that there exist volatility spillovers between China's stock market and the world's major stock markets with obvious characteristics of phased changes.In early years,China's economy was not highly open to the outside world and its finances were strictly controlled.At the same time,China's stock market was underdeveloped and relatively independent of the international market in operations because of its late start.The volatility spillover effects between China's stock market and the world's major stock markets were not obvious at this time.With the outbreak of the financial crisis and European debt crisis,international financial risks have spread globally.The US and European stock markets,as representatives of developed country stock markets,began to spill over into China's stock market.In recent years,the global economy has fallen into a sluggish state of low growth and slow recovery,and China's economy has entered a "new normal".With the significant improvement of the international status of China's economy and the international influence of China's stock market,the volatility of China's stock market began to spill over to the US and European stock markets.Due to the close linkages between the Chinese mainland and Hong Kong in political,economic,cultural and other aspects,the volatility spillovers between Chinese mainland's stock market and Hong Kong stock market have always been significant.The operation of the China's stock market and Japan's stock market was relatively independent,and the volatility spillover effect between the two markets was not very obvious in comparison.The research in this paper reveals the transmission direction and strength characteristics of the volatility spillovers between China's stock market and world's major stock markets.The implications are:(1)For our government,it is necessary to further promote the depth and breadth of Chinese capital market's process of opening to the outside word,improve the international status of China's stock market,and strive to build a financial market system that matches the status of China's economic power;(2)For regulatory authorities,it is necessary to pay attention to volatility spillovers between the word's stock markets when formulating policies,and they must actively prevent external market shocks to maintain the stable development of China's stock market;(3)For investors,they must fully understand the volatility spillover effects between stock markets when making investment,not only paying attention to information on the domestic market,but also to the trends of the international market,which can help them conduct multinational asset allocation and risk management more reasonably.