Empirical Study On The Effectiveness, Volatility And Co-movement Of Financial Markets In China

As the most important participants of financial markets, investors pursue the investment goal of maximizing the reward at a given risk(or minimizing the risk at a given return) through investment activities, and supervisors pursue the supervision goal of normalizing, developing and ripening the financial markets through regulatory activities. Although their goals of financial activities are different or even conflicting with each other's, their reasonable decisions cannot be made without the recognizing and researching of Effectiveness condition, Volatility characteristic and Co-movement relationship in financial markets. For this reason, we conducted an in-depth empirical study of effectiveness, volatility and co-movement among the most important three(3) financial submarkets(i.e. equity market, bond market and forex market) in China.Chapter 1 reviewes the research results achieved in the relevant past literatures, shows the research methodologies, framework and technical routines of this thesis, and executes some preparative technical process and statement of the research data.To study the effectiveness of financial markets in China, Chapter 2 applies correlation test, runs test and variance ratio test to test these markets'effectiveness after completely introducing the origination and development of Effective Market Theory(EMT) and the classification and test approaches of Market Effectiveness. The results demonstrate that our financial markets have not yet reached a weakly effective level. And due to the increasing arguments of EMT in recent years, this chapter introduces the Fractal Market Theory(FMT) accepted widely by both theoritcial and professional circles, and makes an improvement to one of the methods testing fractality in financial markets. The test results verify the generally accepted viewpoint that financial markets are fractal markets.In Chapter 3, the volatilities in China's financial markets are discussed. This chapter first comments on the econometric models reflecting and portraying the common characteristics(i.e. Long-memory, Clustering and Leverage effect, et. al) in financial markets. Then the return data of China's financial submarkets are fitted via various models and orders, and the optimum model and its orders are selected on the basis of a series of criteria. The modeling results reflect that although all of these three financial submarkets have the characteristics of long memory and volatility, their leverage effects are not that significant.As for the co-movement between financial submarkets, Chapter 4 creatively applies the FIVAR-BEKK to model the return data from China's stock, bond and forex markets, considering the effect of the existed long memory. And the modelling results show that: in terms of mean spillover, there is an asymmetric bilateral spillover between stock and forex markets, and a weak, negative and unilateral spillover from stock(forex) market to bond market; while in terms of variance spillover, there exists a bilateral spillover from stock(bond) market to forex market, but does not exist any directional spillover between stock and bond markets. In addition, the examining of the existence of long memory demonstrates that: it does not affect the mean spillover between stock, bond and forex markets at all, but plays a strengthening role on the variance effects.Chapter 5 concludes the research work of this thesis, points out its creativities and limitations, and puts forward some possible improvements in the future study.