A Study On The Holiday Effect Of China 's Capital Market

Markets completed her breaking-through in her ups and downs. So does a man’s life. What every jump brings to you is gains and lots. When we take a close look at these ups and downs, we could find that incidents make up every change, whether it is big or small. We study how each incident, predictable or unpredictable, affect the market when we look at the volatility, relevance and efficiency of it.The HOLIDAY in our study is this kind of predictable incident. Past studies show that non-trading hours affects the market in its asset continuity. And so many big assets jumps occurs or accumulates when trading halted. It is useful to study this kind of non-trading hours. HOLIDAY is one of these samples depicted non-trading.Chinese stock market and futures market are chosen as our studying sample. We use23industry indices as the agencies of stock market and Copper, Aluminum, Rubber, Bean and Soybean Meal futures as the agencies of futures market. For the purpose of comparison, data series are all from January1st,2000to September31st,2012.This paper fully discusses the holiday effects in both stock markets and futures markets. They are described with General Autoregressive Conditional Heteroskedasticity Model. After we get the characteristic of the holiday effects, it is quite natural that we try to find out the reasons why holiday effects may exist and why they show different feature in different assets. We do this in four parts:calendar effects, investor sentiment, nontrading hours and market liquidity. In order to calculate the economic value of the holiday effect, we then build two portfolio based on holiday effect after distinguishing Stocks and Futures.The main conclusions of this paper are:Firstly, we find holiday effect statistically significance in both Chinese stock markets and futures markets. In the futures markets, different futures asset exhibit different holiday character. When we separate four holidays, Chinese New Year effect has a stronger effect to others. In the stock market, the pre-holiday periods affect the stock returns stronger, while the post-holiday periods affect the stock volatility stronger.Secondly, we find holiday effect economically significance in both Chinese stock markets and futures markets. Optimal portfolio based on holiday effect improves the investment performance in two markets. What depressed us is that this kind of performance improvement is largely owing to the portfolio, not the holiday.Thirdly, we try to find the reason behind the existence of the holiday effect. It is not hard for us to exclude other calendar effect in our model.That is to say, holiday effect is not a particular form of other calendar effects. We also get the evidence on market sentiment and investor sentiment. But how about the nontrading hour? In our study, it affects the holiday effect only in the post-holiday periods.