On the Drivers of Persistence in Stock Market Volatility in China

Abstract

We demonstrate that volatility in China’s stock markets tends to be higher and persist for longer than is typical in ‘western markets’, both at the level of composite market indices, and at company level. We provide persuasive arguments and evidence in support of the view that volatility persistence in part reflects the opacity of the information environment the majority of investors operate within. We go on to show that continuing reforms of state ownership and control, along with growth in the proportion of shares held by active institutional investors, look to be promising ways to mitigate the persistence in China’s stock market volatility going forward.

Keywords: Volatility Persistence, Information Environment, Institutional Investors

JEL Classification: G11, G12, G14, G28