Analysis Of Financial Contagion Based On Change-point Testing Method Of Copula Model

With the development and deepening of economic globalization and financial liberalization,regional or global financial crises have occurred from time to time,seriously affecting the healthy and stable development of financial markets.Therefore,it is particularly necessary to study and explore contagion between financial markets.Firstly,based on the GAS-RG Copula model,this paper promoted the dynamic evolution equation of the time-varying parameter by proposing the intercept break GAS-RG Copula model and the structural break GAS-RG Copula model,both of which could model the time-varying dependence structure allowing for structural breaks.In order to avoid artificially selecting the time of change,change-point testing method was applied to both models.Then,the model selection method based on likelihood ratio test was given.Based on two models and their change-point testing method,the empirical study was conducted to study the existence and the dynamic evolution of financial contagion between US stock market and seven stock markets by using the lower tail dependence coefficient.According to the results:(1)Considering datasets in this paper,the intercept break GAS-RG Copula model performed better than the structural break GAS-RG Copula model in most cases;(2)The analyzed countries and region had been infected by the US subprime mortage crisis except mainland China;(3)The contagion effects of the US stock market on the UK,France and Germany stock markets lasted for a long time,while the US stock market's contagion effects on Hong Kong,South Korea and Japan stock markets exhibited short-term characteristics.Secondly,this paper employed the C-Vine Copula to separately model the multiple dependence structure between the US stock market and four Asian stock markets,and the US stock market and three European stock markets.Based on the change-point detection of C-Vine Copula,contagion effects of the US subprime mortgage crisis on Asian stock markets as well as European stock markets were examined by using the lower tail dependence coefficient.The empirical results show that the US subprime mortgage crisis had significantly strengthened the risk dependence between Asian stock markets and hadn't enhanced the tight contacts between European stock markets.The structural changes in the multiple dependence structure between the US stock market and the European stock market were mainly reflected in the US stock market and the UK stock market,the US stock market and the French stock market,and the US stock market and the German stock market.