Analysis of the Spillover Effect of China’s Stock Market Sectors from the Perspective of Higher Moment

Purpose/Significance In the event of great market volatility, despite similar trends shown by different sector indexes, they still demonstrate different characteristics of volatility and spillover in their ups and downs. Design/Methodology This paper adopts GARCHSK model to describe the volatility characteristics of different moments of various sectors in China’s stock market. Furthermore, this paper estimates the magnitude and direction of the first moment, second moment and higher moment risk spillover effects of sectors in China’s stock market between 2004 and 2018. Findings/Conclusions Results show that all sector indexes manifest significant characteristics of higher moment volatility, and strong risk linkage effect of each moment is more likely to spread the risk from one single sector to the whole market due to the interaction between sectors. When crisis breaks out, the volatility spillover indexes could reflect the market changes in a timely manner compared to the spillover indexes of returns, and the higher moment volatility spillover indexes can accurately reflect the features of and the shock to different sectors.