Why Does Return Volatility Differ in Chinese Stock Markets?

Abstract:     
We estimate a modified mixture of distribution model (Andersen, 1996) to explore the underlying causes of the volatility differences between domestic A shares and foreign B shares listed in Chinese stock markets. Using return and trading volume data for 24 firms as well as value-weighted portfolios constructed, we obtain parameter estimates characterizing the distribution of the underlying news information flows. We find evidence that news enters the A-share market more intensively, is more correlated with A-share trading, and is more persistent for A shares than for B shares. Our cross-sectional test results also indicate that some of the greater return volatility for A-shares is due to variation in firm's profits, firm size, and a substantially larger number of investors leading to a high probability of trading on a given news flow.

Note: This is a description of the paper and not the actual abstract.

JEL Classification: G12, G15

Accepted Paper Series