Research On Co-movement And Contagion Effect Among Chinese,US And German Stock Markets

Along with the trend of economic integration and financial liberalization,the correlation and dependence between and among international markets have been gradually enhanced.As such,global stock markets have showcased a trend of "price co-movement".Ever since accession to the WTO in 2001,China occupies an increasingly important position in the world economic system while its linkage to the international financial market is closer than ever.As China has completed share-trading reform and has introduced the QFII and QDII systems,its stock market will be gradually interconnected with the global stock market.While enjoying the advantages brought by economic globalization,China will also face severe challenges of market risks.Accompanying the leapfrog development of technological innovations,crisis events and financial risks will spread rapidly among global stock markets.Traditional econometric models are thereby unable to depict the changing trend and dependence structure of financial asset prices,which raises more demanding requirements for studies of the financial market.Therefore,it is necessary to use the t-Copula model to study the dynamic relations between and among the stock markets of China,the United States and Germany from the two perspectives of co-movement and co-contagion.Moreover,the international influence of the Chinese stock market will be analyzed in combination with major financial events.This thesis first introduces the basic theory and mechanism of stock market co-movement and co-contagion and summarizes the as-is of relevant studies up to present.A comparative analysis is then conducted on the development of stock markets in China,the United States and Germany.Afterwards,a descriptive statistical analysis is carried out on the returns of the SSE Composite Index,S&P 500 Index and DAX Index.Based on the perspectives of co-movement and co-contagion,this thesis uses the dynamic t-Copula technique to describe the correlation structure of stock markets by taking into account the time-varying and nonlinear characteristics of the stock market structure.In addition,it measures the degree of co-movement and co-contagion between and among Chinese,U.S.and Germany stock markets as well as the dynamic change patterns of the two through the rank correlation and tail dependence coefficients.The ARMA(p,q)-GARCH(1,1)-skew t model is utilized to fit the marginal distribution of the logarithmic returns of representative indices in various countries,and then the t-Copula model is applied to estimate the level of Kendall coefficient as well as the upper and lower tail dependence coefficients,which further presents the co-movement and co-contagion effects of stock markets.Moreover,the time difference factor is introduced to study the direction of contagion between stock markets.After sorting out the above research,the thesis draws the following conclusions:Firstly,during the subprime mortgage crisis and European debt crisis,co-movement of international stock markets increased significantly.Secondly,With the improvement of co-movement between a country’s stock market and the world market,the contagion effect between stock markets will be a sustained and significant long-term phenomenon.Thirdly,The contagion effect between the stock markets of China,the United States and Germany is mainly transmitted from the stock markets of the United States and Germany to the Chinese stock market.Finally,the thesis puts forward reasonable suggestions for policy makers and investors.