A State‐Price Volatility Index for China's Stock Market

20 Pages Posted: 2 Sep 2016

See all articles by Michael O'Neill

Michael O'Neill

Bond University - Bond Business School

Kent Wang

University of Queensland

Zhangxin Frank Liu

The University of Western Australia Business School

Date Written: September 2016

Abstract

This study derives a volatility index for China's stock market with similar properties to the Chicago Board Options Exchange Volatility Index (the ‘VIX’). A long‐term benchmark of historic volatility expectations is here presented for China from 1996 to 2011, called the ‘China‐ State‐Price Volatility (SPV)’. Construction of this index involves the use of SPV methodology, using implied volatility calculated from options on the Hang Seng China Enterprise Index (HSCEI). Historic open–high–low–close volatility on the Shanghai Composite Index (SHCI) is also used to extend the benchmark prior to the availability of HSCEI options data. The China‐SPV successfully forecasts realised volatility for the Shanghai Stock Exchange. It also serves as a ‘fear gauge’ in that it monitors daily movements of the SHCI in the same way that the VIX monitors the S&P 500 index (Whaley, 2009). The China‐SPV evidences an increasing relation with the US market in terms of the dynamic correlation of levels and changes with the VIX since 2004.

Keywords: State‐Price Volatility, Fear gauge, China stock market

Suggested Citation

O'Neill, Michael and Wang, Kent and Liu, Zhangxin (Frank), A State‐Price Volatility Index for China's Stock Market (September 2016). Accounting & Finance, Vol. 56, Issue 3, pp. 607-626, 2016, Available at SSRN: https://ssrn.com/abstract=2833596 or http://dx.doi.org/10.1111/acfi.12124

Michael O'Neill (Contact Author)

Bond University - Bond Business School ( email )

Gold Coast
Australia

Kent Wang

University of Queensland ( email )

Australia

Zhangxin (Frank) Liu

The University of Western Australia Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
1
Abstract Views
325
PlumX Metrics