A Study On The Risk Spillover Between Chinese Stock Market And Other Countries Based On GARCH-Copula-CoVaR Model

With the increasing development of economic globalization and integration, Financial market risk events triggered by one country often spread rapidly through various channels to the entire international financial market, systemic risk occur. The risk of transmission between financial markets is called risk spillover effect(or volatility spillover effect). AS China's economic reforms deepen, China's capital market develop quickly. In the end of 2009, the total value of China's stock market has Jumped to the second of the world, becoming an important force in the International capital markets. Meanwhile, the linkages between China's stock market and other major international stock market strengthen. Therefore, the study on the risk spillover effect China's stock market and other major international stock market is of theoretical and practical significance.Research on the risk spillover effect of stock market has been carried out in foreign countries for many years, but little referred to China's market. This may mainly because in a long time, China's stock market is relatively closed to international stock markets, having little effect on the international stock markets. Recent years, along with China's rapid economic growth and opening up, the linkages between China's stock market and other major international stock market strengthen, many researchers began to study the risk spillover effect China's stock market and other major international stock market, achieving certain results. However there are also some shortcomings. Firstly, the literatures mainly use variance represent risk, As variance treats the rise and fall of price equally but risk is just associated with the fall of price, using variance to represent risk is not appropriate. Secondly, little existing literature design indicators to measure the strength of risk spillover effect. This paper use GARCH model, Copula theory and CoVaR method first proposed by the Fed's two scholars Adian and Brunnermeier (2008) to construct GARCH-Copula-CoVaR model to Analyze the risk spillover effect China's stock market and other major international stock market.This paper firstly describes the background and significance of the risk spillover effect and summarize the existing research results. Secondly, conducting theoretical basis for the risk spillover effect through analyzing the mechanism of the risk spillover effect. Then, introducing the Model used in this paper. Lastly, testing the existence and strength of the risk spillover effect China's stock market and other major international stock market through qualitative and quantitative point of view, some advices are put forward according to the reality of China's market.