Paper Infomation
Volatility Spillovers among Chinese, Brazilian and Russian Stock Markets — A Multivariate BEKK-GARCH Model Based on Wavelet Multiresolution Analysis
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Author: Zijian Zhang
Abstract: Connectivity is a power source for the rapid development of the world economy, which promotes economic exchanges between countries while deepening the links between their stock markets. China and Brazil, Russia as a high degree of economic cooperation, the stock markets of the three countries also have many similar characteristics. Therefore, it is of great academic significance to study the volatility spillover effect among the stock markets of China, Brazil and Russia. In this paper, the CSI 500 index, Brazilian Ibovespa index, and Russian RTS index are selected as the representatives of the stock markets of mainland China, Brazil, and Russia to do empirical research on the volatility spillover effect of the return series from January 1, 2014, to December 31, 2019, respectively. The results of Granger causality test show that only the changes in the Russian stock market returns are the Granger causes of the changes in the returns of the Chinese stock market and the Brazilian stock market. Based on the BEKK-GARCH model, it is found that the stock markets of China, Brazil, and Russia all embody volatility aggregation and persistence spillovers, and there are bi-directional volatility spillovers between the stock markets of China and Brazil, between the stock markets of China and Russia, and between the stock markets of Brazil and Russia. In this paper, wavelet analysis is introduced into the study, which is combined with the multivariate BEKK-GARCH(1,1) model to decompose the return series of the stock markets of the three countries into signals of different scales, corresponding to modeling the volatility spillover effects under different trading cycles. It is found that the three stock markets still have significant bidirectional spillovers to each other under short-, medium- and long-term time scales. The article suggests that policy makers should pay attention to the spillovers among stock markets, improve the regulatory system, and introduce policies to counteract market volatility. At the same time, from the perspective of investors, it reminds investors not to ignore important information about highly correlated stock markets.
Keywords: Stock Market, Volatility Spillovers, Wavelet Multiresolution Analysis, BEKK-GARCH Model
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