Research On Risk Spillover Effect Between Non-ferrous Metal Futures And Non-ferrous Metal Stock Market In China

Non-ferrous metals can be divided into industrial metals(copper,aluminum,lead,zinc,nickel,tin,etc.),precious metals(gold,silver,etc.)and rare metals(lithium,beryllium,etc.),which are important industrial raw materials.Their proven reserves and inventory are related to the development of construction industry,industry,etc.,and are of great significance to infrastructure construction.Through the input-output method,Chen Yong(2016)concluded that China's non-ferrous metal industry has a strong correlation with other industries in the industrial system.During the period of China's industrialization,the non-ferrous metal industry occupies an important position.China is a large producer of nonferrous metal resources,with the largest output of lead,zinc,bauxite,tin and gold in the world.At the same time,China's consumption of nonferrous metal resources is also enormous.In order to manage the risk of non-ferrous metal trading.Shanghai Futures Exchange has launched copper,aluminum.lead and other non-ferrous metal futures.Previous scholars' research results show that there are probably Risk Spillover Effects between different markets or countries(Wang,2010).The so-called risk spillover effect refers to the fact that different markets or even countries are affected by some intermediate factors or are directly related to each other,so their returns and risks are not independent of each other.Specifically,Risk Spillover effect means that when one market falls into crisis,other related markets will be affected positively or negatively.Theoretically,the risk of non-ferrous metal futures market and stock market may be transmitted to the other through such intermediate variables as macroeconomy.In order to verify this effect,this paper studies copper,aluminum,lead,zinc,nickel,tin futures and non-ferrous metal stock(HS300 non-ferrous metal index H30034).using GARCH model to calculate conditional value at risk(COVAR)and Risk Spillover value between them.In this way.we can judge whether there is risk spillover effect between these two markets.Through the sign and absolute value of the Risk Spillover value,we can find out whether the risk spillover will increase the volatility of the related market or not.and the degree of mutual influence,so as to provide enlightenment for risk early warning.When scholars use GARCH model to study the Risk Spillover Effect of non-ferrous metal stock market and futures market.they often study non-ferrous metal futures and the stock prices of listed companies in the non-ferrous metal industry.However.this paper studies the H30034,which represents the stock market plate.Based on the price data of copper,aluminum,lead,zinc,nickel and tin futures in CSMAR database and the price data of H30034.this paper calculates the returns of each nonferrous metal futures and H30034 as dependent variables.GARCH model includes mean model and variance model,which can be divided into GARCH(1.1).TARCH(1,1)and EGARCH(1,1).Considering the possible autocorrelation of financial time series,the autoregressive moving average term is added into the mean model,and compared with the simple mean equation.According to the information criterion,models with the smallest AIC and BIC values are selected.After determining the form of the mean model,we will select one model from GARCH(1,1),TARCH(1,1)and EGARCH(1.1)according to the regression results.Then,we can use the return rate and standard deviation estimated by the model to calculate the value at risk,conditional value at risk and Risk Spillover value.The results show that the Risk Spillover value of H30034 to aluminum is about 3%,and the Risk Spillover value of nickel and tin futures to nonferrous metal plate is 3.92%and 5.06%respectively.Other risk spillovers are less than 1%.Therefore,if the trading of non-ferrous metal stock plate is in trouble,the extreme loss of aluminum futures in a certain holding period will increase by 3%;when the trading of nickel or tin futures declines,the extreme loss of non-ferrous metal stock index given a confidence level will increase by 3.92%and 5.06%.In real life,in order to maintain the stability of futures markets to help investors hedge risks,we should not only pay attention to the futures market itself,but also focus on the overall performance of the non-ferrous metal stock market.In order to guard against the potential risks of H30034,we should not only pay attention to the stock prices of nonferrous metals enterprises,but also focus on prices of nonferrous metals futures,especially nickel and tin futures,so as to avoid risk spillover.In other cases,the Risk Spillover Effect between nonferrous metal futures and nonferrous metal stocks is very weak.Generally speaking,China's non-ferrous metal stock market and futures market are highly independent and the pricing is reasonable.