Asymmetry Of Chinese Stock Market Volatility Characteristics And CAUSES

Volatility of stock price is a significant indicator of risk, which is very importantfor the analysis of risk and revenue for investors, effectiveness of regulators and therealization of listed companies’goal to maximize the shareholders’return, Studyingthe pattern and cause of volatility in stock market provide guidance to regulators,investors and listed companies for their activities, therefore, this topic contains boththeoretical and practical value.We firstly reviewed studies about volatility asymmetry in western countries,whose results show that volatility asymmetry exists in most western stock markets,with a presentation that bad news will bring higher volatility than good news. Studiesin our country has shown that we’ve also got volatility asymmetry in stock market,while the pattern of which departs from that in the western markets-good news willsometimes bring higher volatility than bad news. As for the cause of volatilityasymmetry, there has been less studies, and the most recognized theories are TheLeverage Hypothesis raised by Black and Volatility Feedback Hypothesis raised byCampell.This paper is about the characteristic of volatility asymmetry in the stock marketin China and the cause of it. Though the topic about the existence of volatilityasymmetry has been studied by scholars before, still we could reconfirm it upon alatest sample as the stock market is growing and changing over time. It is widelyconfirmed that leptokurtosis and fat-tail is general characteristic of financial timeseries and heteroscedasticity exists with the error terms in econometric model built forthese series, so we need to pick up an appropriate model which accurately describessuch characteristics. GARCH model is widely used in such circumstances, which isalso adopted in this paper with adjustments. The adjusted model can be namedAR-TARCH-GED.We find that volatility asymmetry do exist in the China stock market after analyzethe sample with AR-TARCH-GED model. Further about the cause of volatilityasymmetry, both the Leverage Hypothesis and Volatility Feedback Hypothesis havetheir limitation, which make them not convictive enough especially under thecircumstances in China stock market, which is on its way toward maturity. Threehypothesis are raised in this paper as possible angles of searching for the causes.Preliminary analysis is done for these hypothesis, but deep research isn’t involved dueto limitation of time and knowledge reserve.