The Research On Pure Contagion Of Financial Market’s Extreme Risk Among BRICS Countries

Pure contagion is one of important mechanisms of financial market extreme riskspillover. It will overflow the extreme risk of the financial market of a country to othercountries with financial, trade channels together. Under such a background, the world tradeintegration, financial liberalization, asymmetric information, investor bounded rationality, afragile financial system,the complexity and nonlinearity of risk spillover, the financialmarkets in different countries showed excessive coordination after the outbreak of extremeevents. This mainly dues to pure contagion which caused by the change of the psychologicalexpectations of investors and risk appetite, panic spread, herd behavior.From the angle of group behavior, global financial system can be divided into theinvestor cluster group,financial market cluster group and the national group. This paperanalyzes the pure contagion mechanism of financial market extreme risk and explains thepure contagion between developed countries and BRIC countries in the United Statessubprime mortgage crisis and the European sovereign debt crisis. The pure contagion shockto BRIC countries comes from the direct impact and indirect impact two aspects.In empirical analysis, using GARCH model of GED distribution to estimate the VaR ofextreme risk source countries and use Granger causality, impulse response function to provethe existence of financial market Extreme Risk Spillover between extreme risk sourcecountries and the BRIC countries. On this basis, this paper constructs a spatial model whichbased on two kinds of spatial weight matrix to test the shock of the pure contagion of the risksources to BRIC countries and among the BRIC countries.The empirical results show thatthere is the obvious pure contagion caused by spatial distance and system similarity betweendeveloped countries and BRICS countries in every stage.In the pure contagion test betweenthe BRICS countries, the first stage exhibits only pure contagion caused by geographicrelationship.There is pure contagion caused by spatial relations and economic systemsimilarity between BRIC countries in the third stage. Pure contagion based on these factorsdoes not exist in fourth stage.