Introduction

This introduction presents an overview of key concepts discussed in the subsequent chapters of this book. The book focuses on the extreme risk spillover effect between financial markets. It also develop theoretical statistical tools for analyzing extreme comovements between two time series, and then do an empirical study on the extreme risk spillover between the Chinese stock market and the international market by using the proposed methodology. The new concept of Granger causality in risk is first introduced and a class of kernel-based statistical tests is proposed. The book provides its asymptotic theory and finite sample performance by Monte Carlo simulation. It focuses on the autoregressive conditional duration (ACD) models. Applying the omnibus tests developed in Hong, Li and Zhao and Egorov, Hong and Li, the book provides a comprehensive empirical analysis of both in-sample and out-of-sample performances of various commonly used ACD models for price durations of Euro/Dollar and Japanese Yen/Dollar exchange ra Zhao.