Volatility Characteristics: A Case Of The Chinese Stock Markets

The Chinese Stock Markets are one of the emerging equity markets, the stock price fluctuates violently and frequently. Though we can not deny the positive effect of the high volatility in the early development of China Stock Market, the negative effect of the extremely high volatility should draw more attention. This paper is aimed to reveal some quantitative characteristics of China Stock Market volatility.The paper applies the last datum to examine the volatility characteristics of the Chinese stock market. In first, we applies the Granger causality to examine causality between trading volume and stock returns in the Chinese stock market. We find the trading volume and stock returns series are stationery. There is a positive correlation running from trading volume to absolute stock price and stock returns. There is a feedback Granger causality between trading volume and stock returns. Then, we uses the Impulse Response Function and Forecast Error Variance Decomposition in VAR analysis to determine the persistence of the effect of stock market shocks on the volatility .The estimated Impulse Response Function converges to 0 and the Forecast Error Variance Decomposition converges to a constant value in 5 to 6 weeks or so, which indicates that the effect of a stock market shock on the volatility would die out about 5 to 6 weeks after the shock happened. In the end of the paper, we study on a particular characteristic of the stock market volatility. First, LM test and Q statistic test are conducted for the Composite Index of Shanghai Stock Exchange and the Component Index of Shenzhen Stock Exchange, the null hypothesis of constant volatility is rejected, so the volatility of China Stock Market is not constant over time. Second, GARCH(1,1) model, GARCH-M model, TARCH model and EGARCH model are estimated respectively to examine the stationary of stock market volatility ,the relation of stock market volatility with stock return and the asymmetric effect of stock market volatility .The estimated model indicates that the volatility of China Stock Market is wide-sense stationary and the positive relation between the stock market volatility and stock return. As for the asymmetric effect of stock market volatility, we find this issignificant asymmetric effect for Shanghai Stock Market and a positive shock causes more volatility than a negative shock of the same magnitude does, but the conclusion of estimated models has insignificant asymmetric effect for Shenzhen Stock Market.