Study on the Extreme Risk Spillover between China and World Stock Market after China’s Share Structure Reform

Liangyu Wang

Beijing Aeronautical Science & Technology Research Institute of COMAC, Beijing, China.

DOI: 10.4236/jfrm.2014.32006                

Abstract

With the rising importance of China’s role in the world economy, the Chinese economic fluctuation has become a more and more significant factor that influences the world economy. Therefore, it is an interesting issue for all circles as well as academicians that whether the real economic inter-connection leads to volatility spillover between China’s and international stock markets. In this paper, CGARCH (Combine Generalized Auto Regressive Conditional Heteroskedasticity) model and Granger causality test are applied to examine the relationship between China’s A share index and world’s major indices with respect to the extreme risk spillover effect. The results show that the extreme risk of A share market’s long-run volatility component has strong risk spillover effect on foreign markets, while the short term volatility is vulnerable to the risks from overseas. Since long-run volatility component is consistent with real economic cycle, our results support that China’s economy has deep impact on world economy.

Keywords

Volatility, Granger Causality Test, Extreme Risk

Conflicts of Interest

The authors declare no conflicts of interest.

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