Research on Financial Market Risk Based on GARCH-M Model

Abstract

Since 1970, with the gradual acceleration of economic globalization and the rapid development of information technology, the financial market has become increasingly unstable. Therefore, we must enhance our competitiveness in the financial market, enhance our ability to resist risks, and master effective measures such as measuring risks. In this paper, GARCH-M model and VAR method are used to study the value at risk of financial market and make an empirical analysis. Firstly, the VAR value calculation method based on GARCH-M model under generalized error distribution is given. Secondly, the closing price of Shanghai Stock Exchange Index is selected as sample data, and Eviews software is used to analyze its characteristics. The results show that the logarithmic yield series of the closing price of Shanghai Stock Exchange Index is not normally distributed, and the series has fluctuation aggregation effect, autocorrelation effect and heteroscedasticity effect. Finally, GARCH-M model is established, and VAR estimates at 95% and 99% confidence levels are calculated and tested. The results show that GARCH-M(1,1) model is more suitable for estimating the risk of logarithmic return rate of closing price of Shanghai Composite Index.