Research on volatility spillover effect between foreign exchange and stock market based on computer simulation multi resolution analysis

Abstract

In order to analyze the volatility spillover effect between foreign exchange and stock market, this paper adopts the wavelet multi-resolution analysis method of computer simulation. Firstly, aiming at the problem of high and low frequency oscillation and exchange rate de-noising, we adopts the generalized autoregressive conditional heteroskedasticity (GARCH) model to carry out the oscillation correction and exponential modification of the exchange rate denoising signal based on wavelet multi-resolution, and carries out the corresponding decomposition and fitting combined with the wavelet multi-resolution of the state transition GARCH. Then, through the computer simulation of the modified wavelet multi-resolution analysis, this paper studies the volatility spillover effect between the foreign exchange market and the stock market from different scales, so as to explore the simultaneous research from the time domain and frequency domain. The empirical results show that the low-frequency signals of RMB exchange rate volatility (RMB-ERV) and stock price volatility (SPV) have co-integration relationship. It is unique in that the volatility spillover effect in different trading cycles is inconsistent: in the short term, it is mainly manifested in the volatility spillover from the stock market (VS-SM) to the foreign exchange market (VS-FEM); and with the extension of the trading cycle, it shows both sides of effects on the VS.