Analysis On Volatility Characteristic And Asymmetry In Shanghai And Shenzhen Stock Markets

During the nearly twenty years'development, all kinds of trading rules and supervision system in China's stock market are developing even more maturely and perfectly. But compared with the foreign mature stock market, there still exists huge gap. Because external shocks such as national policies, private information and unexpected events often have a great affect on Chinese stock market, China's stock market often shows frequent fluctuations which always pose serious risks for investors. In order to reveal the risk of the stock market and provide a useful reference to the investors and market regulators, this paper selects the daily closing prices of Shanghai index and Shenzhen component index, applies the GARCH family models and respectively and quantitatively analyzes the characteristics of volatility cluster effect and asymmetric reactions to the positive and negative information shocks in Shanghai and Shenzhen stock markets, according to which we can understand the current fluctuation status of China'stock market, explore the causes and finally put forward relevant policy recommendations.Up to now, a large number of researches have been carried out on the characteristic of volatility in China's stock market. And most of these studies focus on Shanghai and Shenzhen stock markets, choose the period spanning from the opening of the stock market till now. The empirical analysis includes both single market research and two markets research, and also includes overall study and phase study. In the stage studies, most research literatures are dividing the sample on the basis of the evolution of market trading system, and there are very few on the basis of national macro policy implementation, especially the equity division reform implementation in China's stock market, naturally the stage study since then are more fewer. So this paper chooses to periodically study the characteristics of volatility and non-symmetry of Shanghai and Shenzhen stock markets since the equity division reform so as to reflect the China' stock market's fluctuation situation.Since the equity division reform has been launched in 2005, the bull markets in Shanghai and Shenzhen stock markets have lasted for more than two years. In October 2007, it's when Shanghai composite index and Shenzhen component index reached the peak and reversed to slump. Since then the bull markets came to an end and the two markets stepped into another different phase. This paper will study the characteristics of Shanghai and Shenzhen stock markets by dividing the two stock markets into two stages, which based on the day when the two indexes topped the head. By comparing with the overall characteristic, this paper will reflect the stage Shanghai and Shenzhen stock markets have lasted for more than two years. In October 2007, it's when Shanghai composite index and Shenzhen component index reached the peak and reversed to slump. Since then the bull markets came to an end and the two markets stepped into another different phase. This paper will study the characteristics of Shanghai and Shenzhen stock markets by dividing the two stock markets into two stages, which based on the day when the two indexes topped the head. By comparing with the overall characteristic, this paper will reflect the stage characteristics of volatility.First, the empirical results prove that there exists distinguished fluctuation cluster effect in Shanghai and Shenzhen stock markets, which means the fluctuation will be greater in some period and will be smaller in another period. In other words, pre-volatility will affect the future fluctuation.Second, the impacts that good and bad news generates on the stock markets will persist for a long time. From the vertical point of view, this kind of persistence has shown a decreasing trend from the first phase to the second phase. From the horizontal point of view, the persistence in Shanghai stock market will sustain longer than that in Shenzhen stock market, which implies that if subjected to the same external information shocks, Shanghai stock market need a longer time to quell out such impacts on the stock volatility before it returns to the normal range.Third, there exists asymmetrical volatility in Shanghai and Shenzhen stock markets and also shows stage characteristics. In the first stage, there are anti-leverage effects in both stock markets, which suggests positive shocks induce even greater volatility than the same magnitude negative shocks do. Also the non-symmetry in Shenzhen stock market is stronger than that in Shanghai stock market. In the second stage, there exists leverage effects in both stock markets, which means the negative shocks will produce greater volatility than the same magnitude positive shocks do. Also the non-symmetry in Shenzhen stock market is stronger than that in Shanghai stock market. In the total stage, there performs leverage effects in the two stock markets which conclude the same with the second stage. It indicates that the overall volatility asymmetry reflects more features of the second phase, which also proves that it is very necessary to study in stages.In general, since the share reform has been implemented in 2005, the influences of external positive and negative information shocks produced on Shanghai and Shenzhen stock markets have changed the anti-leverage effects in the first stage (2005.5-2007.10) to the leverage effects in the second stage (2007.10 or 2007.11-20011.3).The above-mentioned indicates that China's stock market is heading towards the mature stock market, that the market operating and regulatory mechanisms are improving gradually and that the investors are becoming increasingly rational.Finally, based on the empirical results, this paper explores the causes which lead the stock markets to fluctuate unsteadily. These reasons refer to investor structure, investors'rational factors, policy implications, information disclosure, regulatory- system and so on. Meanwhile the essay puts forwards corresponding policy recommendations in the end.