Thursday, 17 March 2011: 09:00
The problem of risk transferring is well known in empirical finance. Agents often try to transmit their risk from one market to another when the limit values of their potential losses are being approached or exceeded. In the global world the source of risk is very often the same so it is expected to be transmitted across the markets. One of the examples is the ‘market contagion’ phenomenon, known and analyzed in financial literature. The purpose of the current paper is to analyse how risk was transferred between different financial markets, including particularly the Chinese financial market in the last decade. Much attention has been paid to the period of the current financial crisis. The authors focus their attention on such empirical characteristics of risk as the value at risk and expected shortfall. One of absorbing aspects is the possibility that risk is generated locally and that it will be transmitted to another market. To detect whether risk was transmitted between two markets or not the Granger-causality tests have been applied in connection with the causality in variance (Cheung and Ng, 1996) as well as causality in risk (Hong, 2001).
Keywords: financial markets, risk transfer, Granger-causality tests, value at risk, expected shortfall, spectral analysis.