Stock Volatility in the Segmented Chinese Stock Markets: A SWARCH Approach

33 Pages Posted: 21 Feb 2010

See all articles by Zhuo Qiao

Zhuo Qiao

University of Macau

Weiwei Qiao

affiliation not provided to SSRN

Wing-Keung Wong

Asia University, Department of Finance

Date Written: February 20, 2010

Abstract

This study adopts the Markov-switching ARCH (hereafter SWARCH) model to examine the volatility nature and volatility linkages of four segmented Chinese stock indices (SHA, SZA, SHB, and SZB). Our empirical findings are consistent with the following notions. First, we find strong evidence of regime shift in the volatility of four segmented markets and SWARCH model appears to outperform standard GARCH family models. Second, although there are some common features of volatility switch in segmented markets, there exist a few difference: (i)compared with the A-share markets, B-share markets are more volatile and shift more frequently between high- and low-volatility states; (ii) B-share markets have longer stays at high volatility state than the A-share markets; (iii) the relative magnitude of the high volatility compared with that of the low volatility is much greater than the case in two A-share markets. Third, B-share markets are found to be more sensitive to international shocks, while the A-share markets seem immune to international spillovers of volatility. Finally, analyses of volatility spillover effect among the four stock markets indicate that the A-share markets play a dominant role in volatility in Chinese stock markets.

Keywords: Markov-Switching ARCH Model, Volatility, Market Segmentation, China Stock Markets

Suggested Citation

Qiao, Zhuo and Qiao, Weiwei and Wong, Wing-Keung, Stock Volatility in the Segmented Chinese Stock Markets: A SWARCH Approach (February 20, 2010). Available at SSRN: https://ssrn.com/abstract=1556504 or http://dx.doi.org/10.2139/ssrn.1556504

Zhuo Qiao

University of Macau ( email )

P.O. Box 3001
Macau

Weiwei Qiao

affiliation not provided to SSRN ( email )

Wing-Keung Wong (Contact Author)

Asia University, Department of Finance ( email )

Taiwan
Taiwan

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