Research On The Impact Of Emergencies On The Financial Markets

With the development of human society, the emergencies occur frequently.Especially in this century, the emergencies happen more frequently, and present somenew characteristics, such as the follow emergencies: In2001, the happen of UnitedStates "9.11" terrorist attacks made people feel about panic and anxiety; In2003, theoutbreak of SARS virus in China and spread across the country have a great influenceon people’s psychology; In2008, the rain and snow freeze disaster broke out in southernChina, and it has caused adverse impact on our country’s economy and society; In2008,the Wenchuan earthquake broke out in China, which changed people’s outlook on life,values and attitudes; In2011, Japan’s Fukushima nuclear power plant leak led people toconcern about the safety of nuclear power, and triggered a widely discussion thatwhether humans should use nuclear power.At present, our country is in the high-speed economic development period of socialtransition. Our country is facing the serious situation such as a large population andunbalanced economic development. This also makes the whole social interestrelationship is very complicated, and leads to the contradiction between the variousstakeholders. Unconventional emergencies intensify the contradiction between thevarious stakeholders, bring instability to the whole society, cause the instability to theeconomic development, and bring threat to the steady development of China’senterprises. The enterprise is very important to the national economy, and the stabledevelopment of the enterprise is beneficial to the development of the economy. At thesame time, the stability of social and economic development provides a goodenvironment to the enterprise, and it is conducive to the development of enterprises. Theemergencies have influence and impact on economies and societies. Because of thefinancial market is a reflection of the whole economy and society, these influence andimpact would quickly transmitted to the financial markets, and impact to the enterprise,influence enterprise’s stock issuance and financing in the stock market, also affectcorporate bond issuance in the bond market and sales. Therefore, emergencies willaffect the development of the stock market and bond market.Because the stock market and bond market is an important part of financial marketin China, they a special position in Chinese financial market. The impact of emergencies on the Chinese stock market and bond market will affect the stability of thefinancial market. It has important practical significance to research the impact ofemergencies on stock market and bond market in China, especially for the stability ofthe whole financial market, investors’ investment in the financial market and financialrisk supervision department. The author uses the Econometric analysis method,constructs econometric analysis model, does empirical researches on the impact ofemergencies on Chinese stock market and bond market, and analyzes the influencedegree, the dynamic impact effect and dynamic impact processes of emergencies onthe Chinese stock market and bond market.First of all, the author studies the impact of emergencies on the stock market andbond market return by the Autoregressive Integrated Moving Average (ARIMA) model.The author selected a far-reaching emergency in China-the Wenchuan earthquake. Theauthor researched the influence of the size and influence degree of the Wenchuanearthquake on Chinese stock market and bond market return. The author do traceprediction to stock market and bond market return using ARIMA model, analyze theinfluence of the size and influence degree of the Wenchuan earthquake on Chinesestock market and bond market return. The author chose another emergency-SARS eventwhich obviously impact China’s economic and social to do robustness test. Theempirical results show that, the fitting effect and prediction effect of ARIMA model theauthor built is both good. Prediction results show that Wenchuan earthquake has anegative impact on the stock market, and has positive influence on the bond market.The reason is mainly due to the happening of emergency which lead to investors’“flight-to-quality” behavior and transferring investment from the stock market whichhas higher risk to the bond market which has lower risk. Robustness test results showthat, SARS event has a negative impact on the stock market, and has positive influenceon the bond market. Empirical results have good robustness in this dissertation.Secondly, based on the characteristics of emergencies’ impact, the author dividesemergency into three types: terraced emergencies, pulse emergencies and gradualchanging emergencies. Using virtual variables to describe the different types ofemergencies, the author build the ARIMA-GARCH transfer function model to study theimpact of the three types of emergencies on the volatility of stock and bond market. Theresults found that:(1) terraced emergencies, pulse emergencies and gradual-changingemergencies all have a significant negative influence on the volatility of the stock market, and have a remarkable positive influence on the Volatility of bond market. Thehappening of emergency, lead to transferring investment from the stock market whichhas higher risk to the bond market which has lower risk, contributed to the volatility ofstock market and bond market.(2) The impact of gradual changing emergencies on thestock market and bond market lasts longer than that of terraced and pulse emergencies.This indicates that the impact of Wenchuan earthquake on the stock market and bondmarket has a longer duration, which leads to the continued volatility of the stock marketand bond market.Thirdly, The author divide emergency into three types: terraced emergencies, pulseemergencies and gradual changing emergencies. The author use Cointegration test toanalyze the long-term equilibrium relationship between stock market and bond marketunder the background of emergency. The author use Granger causality test to analyzethe causal relationship between stock market and bond market under the background ofemergencies, and seek for risk transmission path of emergency. The author build VectorAutoregressive model (VAR), construct the generalized impulse response function, andintuitively describe dynamic impact process of the different types of emergency onstock and bond markets. The results show that emergencies have a significant impact onthe stock market, Treasury bond market and enterprise bond market. Impulse responsefunction shows that the impact of emergencies on the stock market, bond market andenterprise bond market is a dynamic process. The dynamic impact effect of differenttypes of unconventional emergencies on the stock market, bond market and enterprisebond market effect is different, and the duration is different too.Finally, the author studies countermeasures of financial market under thebackground of emergency and puts forward the policy recommendations to the impactof emergencies, mainly including: technology strategy and Non-technical strategy ofstock and bond markets respond to emergencies.