Research on the Linkage and Risk Transmission Mechanism of Cross - border Financial Derivatives Markets -- A Case Study of the Chinese and US Markets

Abstract

This paper studies the linkage and risk transmission of cross - border financial derivatives markets between China and the US. In the era of global economic integration, such research is crucial for policy - making, financial stability, and risk management. It defines and classifies these derivatives, reviews market development, participants, and trading mechanisms. For market linkage, relying on theories like international capital flow, it uses methods like correlation coefficient tests. Empirical data (2015 - 2024) shows a positive correlation (0.4 - 0.6) and cointegration in equity derivatives, with the US guiding China's market after 3 months. But in interest rate derivatives, linkage is weak (0.2 - 0.4), with no cointegration or clear causal link. Risks in the market include market, credit, liquidity, and operational risks, transmitted via international capital flows, financial institution linkages, and investor confidence, as shown by the 2008 US subprime crisis. Both countries have taken risk - management measures but face challenges. Thus, the paper suggests strategies at macro - policy (policy coordination, regulatory system improvement), market - supervision (information disclosure, risk monitoring), and investor levels (education, rational asset allocation). In conclusion, there are differences in equity and interest rate derivatives market linkages. The risk transmission mechanism is clear, along with risk - management challenges and solutions. Future research can cover emerging derivatives, use technical means, and countries should boost cross - border cooperation.