Research On Volatility Spillover Of Multiple Securities Markets To Single Securities Market Based On ICA-GJR-GARCH-M Model

With the acceleration of the world economic and financial globalization, all countries are becoming closely related in the economic and financial areas. China’s securities market becomes increasingly tied to the world securities markets, which contributes to the development and improvement of itself. Meanwhile, risks dynamically evolve among various securities markets, and new features as the range of influence extending continuously are emerged. In this context, China’s securities market is more often battered by other securities markets and influenced by the volatility spillover effect of the international securities market.An ICA-GJR-GARCH-M model is used to study the volatility spillover effect of multiple securities markets on single one. Firstly, the definition of volatility spillover of multiple securities markets on single securities market is illuminated. Then, the mechanism is discussed from the aspects of reasons and ways. After that, the ICA-GJR-GARCH-M model is constructed with a combination of independent component analysis from multivariate statistical analysis and the GJR-GARCH-M model from time domain analysis methods. Next, empirical research on the volatility spillover of Hong Kong, Japan, the United States, Korea and UK securities markets to China’s mainland securities market is done with the ICA-GJR-GARCH-M model based on measuring the volatility of securities markets. Finally, some appropriate policy recommendations based on the empirical results are given.The results show that, Hong Kong, Japan, the United States and Korea securities markets all have volatility spillover effect on China’s mainland securities market to a large extent, while UK securities market is not. Thus, in the process of integration into the international securities markets, China’s mainland securities market should not only pay attention to the risks existed in the securities market itself, but also keep high vigilance to the risk contagion, especially that from countries or regions which have close economic ties with China’s mainland like Hong Kong, America, Japan and Korea. Besides that, more measures in risk prevention are required.