The Volatility Spillover Effects With Relative Dynamics Between Domestic And International Stock And Foreign Exchange Markets

With the deepening of China’s opening-up,domestic capital market is expericencing transformation from channel opening to regime opening.Meanwhlie,financial globalization promotes closer connections among financial markets cross countries(regions).When fluctuations of asset prices coerce the information impact and transmits among financial markets,so it comes to being the volatility spillover effect between markets.In the period of sharp decline in the short-term risk appetite,the risk contagion behind the volatility spillover can not be ignored.Through the research on the volatility spillover effects along with relative dynamics among domestic and international stock markets and foreign exchange markets,we can understand the significance and path of mutual volatility risk transmission between domestic market and international markets.Also,from the perspective of the dynamic relationship,we can analyze the time-varying characteristics behind the volatility spillover effect,which would help investors achieve short-term prediction when facing potential external shocks to some degree.Based on the framework of VAR-MGARCH model,the paper selects stock markets and foreign exchange markets as the research objects,uses the samples from developed financial markets including Chinese Hong Kong,the United States and Europe,to test the spillover effects along with relative dynamic characteristics between domestic and international stock markets and foreign exchange markets from 2006 to2020.The research has confirmed the following conclusions:(1)A positive long-term dynamic correlation exists between domestic and international stock markets,and global risk events could strengthen the dynamic correlation between stock markets in short term;(2)Bidirectional mean spillovers exist between domestic and stock markets in Europe and the US,bidirectional and unidirectional(China→the US)mean spillovers exist between domestic and foreign exchange markets in Europe and the US.All the mean spillovers have verified causality except for the mean spillovers from Europe foreign exchange market to domestic stock market;(3)According to the results of the whole sample period,bidirectional volatility spillovers exist between domestic and stock markets in Chinese Hong Kong and the US,and unidirectional volatility spillover exists from domestic to Europe stock market.The spillovers from domestic stock markets are stronger than that from foregin exchange markets.Ever since the opening of the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect,the volatility spillover effects among stock markets have further enhanced,though;(4)From the perspective of intraday transaction,the opening volatility spillovers between domestic stock market and international stock markets are stronger than the closing volatility spillovers,except for the Europe to doemstic stock market.The intraday shock displays the characteristics of decay.Based on the research conclusions above,the paper suggests that financial departments should further strengthen the supervision on financial market and monitor the potential risks across markets internally,and deepen international financial cooperation to maintain the global financial order externally.Besides,individual investors shall improve their risk awareness to match risk appetite with their risk tolerance,while professional investors may capture trading opportunities utilizing the volatility features.