Chinese Stock Market Volatility and the Role of U.S. Economic Variables
37 Pages Posted: 4 May 2016 Last revised: 17 Jul 2017
Date Written: September 4, 2015
This paper investigates the effects of U.S. economic variables on the time variation of Chinese stock market volatility. We find that several U.S. economic variables such as the dividend price ratio, dividend yield and industrial production strongly forecast the future monthly volatilities of the Chinese stock market. The predictability can be further improved when combining the information in all U.S. economic variables together. Forecast encompassing tests and regression tests show that the forecasting power of U.S. economic variables is incremental when comparing with the Chinese domestic economic variables. Our findings are robust for the out-of-sample analysis and a number of Chinese industry portfolios volatilities.
Keywords: Volatility Forecasting, U.S. Economic Variables, Out-of-sample Forecasting, Combination Forecast, Chinese Stock Market
JEL Classification: C22, C53, G11, G12, G17
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