Empirical analysis of spillover effects between China's financial markets based on five-variable VAR-GARCH-BEKK model

Abstract

In order to analyse the spillover effect between China’s financial markets comprehensively, this paper selects monetary market, exchange market, stock market, bond market and commodity futures market and uses five-variable VAR(1)-GARCH(1,1)-BEKK model to carry out empirical analysis of mean and fluctuating spillover effect between above five financial markets. The result of empirical analysis shows: Firstly, in the aspect of mean spillover effect, except exchange market having no spillover effect on monetary market and commodity futures market as well as monetary market having no spillover effect on stock market, other financial markets all have one-way or double-way spillover effect on each other. Secondly, in the aspect of fluctuating spillover effect, except exchange market and bond market having one-way spillover effect on monetary market as well as stock market and bond market having one-way spillover effect on monetary market, other markets all have double-way spillover effect on each other. Accordingly, this paper thinks that government should prevent the huge fluctuation in financial market, make supervision on financial markets and take actions to prevent risk while stabilising the macro-economy, which are beneficial to release the degree of accumulation of financial risk in China.