Abstract
In 2008, the U.S. subprime mortgage crisis overwhelmed the global financial system, which sparked drastic fluctuation of world stock index. Subsequently, the risk of investment in global stock markets has augmented considerably. Applying the VaR approach based on GARCH model, this paper attempts to thoroughly investigate the volatility of S&P 500, NASDAQ, DJIA, GDAXI and CSI 300. For the purpose of comparison, data are divided into 2 parts: before the 2008 financial crisis and after the 2008 financial crisis. Thus, the paper elaborates impacts of the 2008 financial crisis on global stock index. In addition, this paper puts forward policy implications of risk control in Chinese financial market. According to empirical results, before the 2008 financial crisis, S&P 500, NASDAQ and DJIA were relatively stable; GDAXI was slightly fluctuant while CSI 300 fluctuated dramatically. When confronting with the 2008 financial crisis, the volatility of three American stock indexes surged at once, even exceeding that of CSI 300. GDAXI, however, experienced a time lag in the increase of volatility. So far, S&P 500, NASDAQ, DJIA and GDAXI have gradually recovered. On the contrary, CSI 300 still undulates frequently and erratically.
Highlights
Within the 2 years prior to June 2006, the Federal Reserve Board consistently raised the interest rate 17 times
During the 2008 financial crisis, global stock index dropped in varying degrees accompanying with wild gyrations, which indicates that risks of the stock market have rocketed up
Based upon GARCH-VaR approach, this paper assesses the risk of S&P 500, NADSAQ, DJIA, CSI 300, and GDAXI
Summary
Within the 2 years prior to June 2006, the Federal Reserve Board consistently raised the interest rate 17 times. The U.S subprime mortgage crisis erupted and gradually turned into a financial tsunami, which engulfed the global financial industry. Attributed to such crisis, plenty of commercial banks and security companies went into liquidation. Commercial banks commenced to raise interest rates and decrease the quantity of loans available to lenders, causing the liquidity of world major stock markets to slump. During the 2008 financial crisis, global stock index dropped in varying degrees accompanying with wild gyrations, which indicates that risks of the stock market have rocketed up. Because of the increasing correlation with other stock markets, Chinese government ought to ponder over how to tackle new types of risks and what corresponding actions need to be taken.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have