Research On Jump And Volatility Spillover Between Shanghai And Hong Kong Stock Markets’ Returns

Jump and volatility spillover between the stock markets and are the hot issues thatthe recent financial experts focus on. With economic globalization and financialliberalization, this phenomenon occurs widely among the world’s major stock markets,having an increasingly significant influence. Shanghai and Hong Kong stock market isone of the most important Chinese stock market, the research of jump and volatilityspillover between the two markets can not only help us to sort out how theconnections between them work and what is the way the two markets influence eachother, but also help the financial supervisory authorities to adjust regulatory strategyand investors to build portfolios to hedge risk.This thesis firstly collected the literatures in the related fields to find thedefinition of jump and volatility spillover. After pointing out the deficiencies of theexisting research, we presented our own research ideas. Secondly we briefly discribesthe SVCJ model which based MCMC algorithm, jumping spillover indicator andvolatility spillover measurement model. We did basic statistical analysis aftetselecting the Shanghai Composite Index and Hang Seng Index return as therepresentatives index of the two markets. By using the SVCJ model to estimate theparameters, jumps and volatility of the two stock markets and utilizing quantitativeindicators such as conditional jumps spillover probability, frequency degree of jumpspillover, jump spillover intensity and the average size of the jump spillover toanalyse jump spillover phenomenon, through the establishment of vector errorcorrection model, Granger causality test, generalized impulse response functions tomeasure the volatility spillover between the two places, we ultimately reached thefollowing conclusions:(1) fluctuations in the Hong Kong market is small, and it’samplitude and frequency is not large; but fluctuation in Shanghai market is large, it’smagnitude and frequency of jumping is also large.(2) Hong Kong stock market ismore sensitive to the unexpected events and significant information, but Shanghaistock market is relatively insensitive.(3) In the long term, a balanced relationshipbetween the two market is existed and the SSECI return’s volatility has a greatfluctuations to the HIS return’s volatility, while the impact of the two markets to eachother spends a very long time.(4) In the short term, the two markets’ volatilityspillover has a one or two day lag effect, influenced by their own. Finally, after proposed this conclusion, we draw out some policy recommendations. Shortcomingsof this study and future research prospects were also presented.