Research Of Volatility Spillover Effect Of Stock Market In China

There are linkages between Chinese stock market and foreign stock markets. Most of the impulses from foreign markets are absorbed by the B-share market, so do little to A-shares market. With the more strong linkages between Chinese markets and foreign markets, it is possible that China may suffer the same financial crisis as the Asia financial crisis in 1997-1998. So it is useful to know the mechanism of the volatility spillover effects between the Chinese markets and the foreign markets.Research about the volatility spillover effects of stock markets has worked several years. But little refer to Chinese markets. There are some domestic research on the subject, but they only separate the market into ShangHai market and ShenZhen market, showing no notice to the fact that A-share and B-share act differently. In one word, there is little attention to mechanism how the A-share and B-share interact.Firstly, It is referred that behavior finance denies the assumption of full information. Secondly, the source of volatility transmission may be resulted from investors' thoughts. The investors investing in several markets also speed the transmission of volatility. At last, the mechanism and market characteristics of Herd behavior is also introduced. Volatility spillover effect is zoomed in by the herd behavior.With the fact that A-share and B-share is segmented, wavelet analysis is imported. The series are decompositioned by the multi-resolution analysis. They are separated into two parts-the high frequency and the low frequency. For testing the volatility spillover effect, Granger causality relation test and VAR are used.With the development of the Chinese financial system, the market segment of A-share and B-share is obscure. But the methods in the paper are still useful.