The Effect of Information Flows on Volatility of Stock Markets: Chinese Evidence
Zhao, Ran (2008)
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Tiivistelmä
This study analyzes the effect of information flows on Chinese A-share market. The purpose of the study is of three aspects. First, the study investigates whether trading volume and volatility of world market are correlated to the volatility of Chinese market. Second, the effects of information flows are compared between Shanghai with Shenzhen market, from bear period to bull period. Finally, the leverage effect, namely the asymmetric reflections to bad and good news, on Chinese market is also analyzed.
The main sample in this study is Shanghai, Shenzhen A-share market and the world market represented by MSCI World Index. The data pool is comprised of daily observations of Shanghai A-share Index (SHAI), Shenzhen A-share Index (SZAI) and MSCI World Index. The trading volume of SHAI and SZAI are also utilized in the study. The sample period spans from 1st, Jan. 2003 to 31st, Dec. 2007.GARCH (1,1) and EGARCH (1,1) model are employed in the empirical studies.
The empirical findings demonstrate the MDH theory holds in Chinese A-share market, which indicating the volatility is affected by old information and new information together. The old information has a bigger effect on the volatility during the bear period while the new information impacts more on volatility in the bull period. The effect of international information is more significant in Shenzhen market, but is larger in Shanghai market in the bear period. Leverage effect is also found in Chinese market. This study contributes to existed literature by the consideration of international factor.
The main sample in this study is Shanghai, Shenzhen A-share market and the world market represented by MSCI World Index. The data pool is comprised of daily observations of Shanghai A-share Index (SHAI), Shenzhen A-share Index (SZAI) and MSCI World Index. The trading volume of SHAI and SZAI are also utilized in the study. The sample period spans from 1st, Jan. 2003 to 31st, Dec. 2007.GARCH (1,1) and EGARCH (1,1) model are employed in the empirical studies.
The empirical findings demonstrate the MDH theory holds in Chinese A-share market, which indicating the volatility is affected by old information and new information together. The old information has a bigger effect on the volatility during the bear period while the new information impacts more on volatility in the bull period. The effect of international information is more significant in Shenzhen market, but is larger in Shanghai market in the bear period. Leverage effect is also found in Chinese market. This study contributes to existed literature by the consideration of international factor.
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