Research On The Risk Spillover In Domestic And Foreign Stock Markets Based On Copula-GARCH-?CoVaR Method

During the process of economic globalization and financial integration,the relationship between countries or regions have become increasingly close.The links between global financial markets have also become increasingly close and complex.In particular,as the barometer of economy,the stock market prices rise and fall simultaneously in some degree.This phenomenon not only affects the global asset allocation for investors at the micro level,but also provides a channel for the contagion of financial risk at the macro level.Events such as the United States stock market crash in 1987,the Asian financial crisis originated in Thailand in 1997,and the global financial crisis originated in the United States from 2007 to 2009 all indicate that financial risks can spread across regions and markets,which have made a deeper understanding of the interdependence between domestic and global financial markets for all countries.Focusing on Chinese financial market,since the trial of QFII in 2002,Chinese financial market has continued to open up to the global markets.During this process,there are much value and practical significance for research on the change of interdependent structure between Chinese and foreign stock markets,the impact of foreign stock markets on Chinese stock markets under extreme conditions,the influence mechanism of the risk spillovers between Chinese and foreign stock markets and measures of dealing with the risk spillovers in the global financial markets.How to accurately measure the interdependence and risk spillover of capital markets has always been the focus of research in the field of financial risk management.The main research methods include correlation coefficient,cointegration test and Granger causal relation test,GARCH models,Copula functions,CoVaRmethod,etc.Due to the flexible form and loose restrictions,the Copula functions have been widely used in the field of financial risk management and have become mainstream methods to describe the structure of interdependence among financial variables.Many scholars at home and abroad,including Aloui et al.(2011),Samitas and Tsakalos(2013),and Ye Wuyi et al.(2018),apply Copula theory to the study of the interdependence of stock markets.As for the measurement of risk spillover,the generalized ?CoVaR proposed by Girardi and Ergün(2013)expands the measurement of financial risk.Compared with traditional ?CoVaR models,it includes more tail information so that it can characterize the tail of financial time series more accurately.However,there are relatively few empirical applications of the generalized ?CoVaR in China.Ouyang Zisheng and Mo Tingcheng(2017)and Cao Jie and Lei Lianghai(2019)calculate the generalized ?CoVaR with quantile regression method and time-varying Copula respectively,and the results show that the generalized ?CoVaR model can measure the risk spillover effect more accurately than traditional risk measurement models.In the current research on the risk spillover effects of Chinese and foreign stock markets,scholars at home and abroad pay more attention to the risk spillover effects between the stock markets of China and developed countries.There are less research on emerging stock markets,especially on the comparison between stock markets of China and countries with different levels of development.In addition,research on the influencing factors and mechanism of risk spillover effects between Chinese and foreign stock markets are also relatively scarce.A large amount of literature focus on whether the interdependence between stock markets has changed,whether the risk spillover or risk contagion have occurred.Based on the above research status,this paper characterizes the interdependence and risk spillover effects between Chinese and foreign stock markets,and divides the research objects into developed and developing countries,and analyzes the time-varying interdependency characteristics of the stock markets between China and countries with different development levels.On this basis,this paper selects some potential factors and establishes a panel data regression model to explain the risk spillover effects between Chinese and foreign stock markets.This paper selects the daily logarithmic return sequence of 11 major global stock market indexes,including Shanghai(securities)composite index,as the research sample.Viewing the trial of QFII in November 2002 as the beginning of opening-up in Chinese capital markets,this paper sets the interval of the sample from November 11,2002 to November 30,2020.Firstly,this paper constructs a framework for measuring the interdependence between Chinese and foreign stock markets,and uses time-varying Copula functions to calculate the dynamic correlation coefficient as the measure of the dependence relationship between the Chinese and foreign stock markets.On this basis,this paper calculates ?CoVaR as the absolute measure and % ?CoVaR as the relative measure of risk spillover effects.Finally,through the establishment of a panel data regression model,this paper makes a deep research on the influence of Chinese financial liberalization,trade intensity,extreme risk events and macroeconomic factors on the risk spillover between Chinese and foreign stock markets from a quantitative perspective.The main conclusions of this paper are as follows:(1)From the perspective of time,since November 2002,the Chinese and foreign stock markets have shown a positive relationship of flactuant increasing trend.(2)From the perspective of linkage objects,the interdependence between Chinese stock market and the stock markets of developing countries is higher.(3)Based on the analysis of generalized?CoVaR,it is found that Chinese stock market has a strong impact on developing countries stock markets.But for developed countries,Cinese stock market acts more as a risk taker.Among the ten linkage objects,the bidirectional risk spillover between the Chinese and Japanese stock markets is the strongest,and the relationship of risk contagion is the closest.(4)Judging from the results of the cause analysis,Chinese financial liberalization and trade intensity do not have a universal mechanism for the risk spillover effects of Chinese and foreign stock markets.As for extreme risk events,there is bidirectional and universal risk spillover during global financial crisis and the epidemic of COVID-19 in 2020.During the 2015 stock market crash,Chinese stock markets accepted financial risk from foreign stock markets.Macroeconomic factors make an influence on the risk spillover between Chinese and developing countries stock markets.The innovations are mainly embodied in three points:(1)This paper applies generalized ?CoVaR to the study of risk spillover effect between Chinese and foreign stock markets,which expands the study of risk spillover between Chinese and foreign stock markets.On this basis,in order to describe the dynamic evolution process of risk spillovers in Chinese and foreign stock markets more accurately,this paper calculates the generalized ?CoVaR based on the time-varying Copula models,which makes the investigation of risk spillover effects more realistic.(2)A panel data regression model is established for cause analysis from quantitative perspective,which attempts to analyze the influence degree of potential factors on the risk spillover and its internal mechanism.(3)In the cause analysis model,this paper improves the indicators of Chinese financial liberalization constructed by Zhuang Xiaojiu(2007).In addition,this paper focuses on major public emergencies in the non-economic and non-financial fields,taking epidemic of COVID-19 which broke out firstly in China as representation,and incorporates it into the index system of the cause analysis model.The shortcomings of this paper reflect in the following points.(1)The empirical research focuses on the risk spillovers between the Chinese stock market and foreign stock markets without further considering the spillover and contagion of financial risks in foreign stock markets.At the same time,this paper only selects ten national stock indexes,which cannot fully describe which part is Chinese stock market in during the spread process of financial risks and the influence degree of suffering from shocks when risk spillover and contagion occurs.In further research,the sample size can be increased,and a higher-dimensional interdependency structure models can be established to make the results closer to reality.(2)In terms of cause analysis,this paper explores the causes of risk spillovers between Chinese and foreign stock markets from four aspects: Chinese financial liberalization index,trade intensity,extreme risk events,and macroeconomic indicators.Due to the limited professional knowledge,the selection of potential influencing factors is not comprehensive enough to fully explain the internal mechanism of risk spillover effects between Chinese and foreign stock markets.In further research,the influencing factors of risk spillover effects can be expanded so that the internal mechanism of risk spillover effects of Chinese and foreign stock markets can be deeply analyzed from multiple angles.