Research Of Volatility Spillover Effect Between Domestic And Foreign Stock Market Based On Variable Structure Copula Model

Under the condition of economic globalization and financial integration, the outbreak offinancial crisis intensifies the risk of transmission between the global financial markets. Thephenomenon that risks transfer through different financial markets is called volatility spillovereffect between financial markets. Although there are many researches about the volatilityspillover effect, some defects still exist. Therefore, based on the review of the traditionalresearch methods about the volatility spillover effect, this paper put forward a new researchmethod——the combination of EMD decomposition technique and variable structure Copulamodel. And through the empirical analysis, the application effectiveness of this method onvolatility spillover effects between different between stock market is verified.The major work of this paper can be summarized as follows: Firstly, stock returns weredecomposed into new sequences with different economic implications using EMD technique.Then, combined with Granger causality test method,high and low frequency sequence ofstock market in different regions were analyzed. Finally, taking stock returns of highfrequency sequence as study object of volatility spillover effect, variable structure Copula wasestablished, and fluctuation spillover intensity was analyzed through the study of Copulafunction correlation coefficient.Based on the method above, using the daily closing price of the Dow Jones index (DJI),Britain’s Financial Times Index (FTSE), the Nikkei225index (NIK), the Hang Seng Index(HSI), the Shanghai and Shenzhen300index (HS300) from January4,2006to December30,2010as the sample data, volatility spillover effect between different stock market was deeplyanalyzed in this paper. The results showed that:(1)In addition to Japan and Mainland China,stock market volatility spillover, volatility spillover is existed between the rest of the stockmarket. Among them, there are long-term volatility spillover effect between stock market ofBritain and the United States, Japan and Hongkong of China. And the United States stockmarket leads the word.(2)Stock market of Britain and the United States changed from theshort term two-way flow of information into the one-way flow of information. Stock marketof Japan and Mainland China changed from non-existent information flow into the two-wayflow of information. The rest of the stock market, with the extension of the transaction cycle,changed from one-way information flow into the two-way flow of information. The stockprice changes in developed countries often lead to. developing countries.