Analyses of Transmission Mechanisms of Stock Market Volatility between China and U.S in Subprime Lending Crisis: Evidences based on the EDCC-GARCH Model

摘要

This paper studies the dependence of China and U.S financial markets when subprime lending crisis occurs, on the basis of EDCC-GARCH model. Traditional research based on DCC-GARCH model, but DCC-GARCH model only allows contemporaneous dependence through conditional correlations, which is not sufficient for volatility interaction. EDCC-GARCH model allows the interaction in the form of both lagged squared observations and lagged conditional variances from the other equations of the system. Empirical analysis shows EDCC model better than DCC model with simulation china and U.S finance markets correlation. This paper also offers theoretic support to portfolio and risk management.