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On Chinese stock markets: How have they evolved over time?

  • Analytical Models for Financial Modeling and Risk Management
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Abstract

China is the largest emerging capital market with a unique setup: it issues simultaneously both (i) Class A shares addressed to Chinese domestic investors, and (ii) Class B Shares addressed to foreign investors. After Chinese stock market resumed the operation, they feature dramatic fluctuations due to policy changes and over-speculative activity of individual investors. This paper aims to analyse the evolution of both the Shanghai A and B Markets through a Markov-switching asymmetric GARCH in four different time frames.

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Notes

  1. Indeed, in most empirical applications, the GARCH(1,1) is enough to reproduce the volatility dynamics of financial data, a fact that led the GARCH(1,1) to become the “workhorse” model by both academics and practitioners (Ardia 2008).

  2. For a complete description of the model see Ardia (2008).

  3. Additionally, \(\pi _1\) and \(\pi _2\) denote the steady state (i.e. long-term probabilities) of the system.

  4. Additionally, and for the sake of robustness, we have fitted two additional models obtaining similar results: Markov Switching Threshold GARCH and a Mixture Markov GARCH.

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Acknowledgements

The usual caveat applies. We are particularly grateful to two anonymous referees and the Editor-in-Chief for many valuable comments and suggestions that have led to a substantial improvement in the manuscript. Financial support from Generalitat de Catalunya (2014SGR325 and 2014SGR631) and Ministerio de Economía y Competitividad (ECO2016-75410-P) is acknowledged.

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Authors and Affiliations

  1. Dep. d’Economia and CREIP, Universitat Rovira i Virgili, Av. Universitat 1, 43204, Reus, Spain

    Sebastián Cano-Berlanga & José-Manuel Giménez-Gómez

  2. Dep. Economia Aplicada, Universitat Autònoma Barcelona, 08193, Cerdanyola del Vallès, Barcelona, Spain

    Sebastián Cano-Berlanga

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  1. Sebastián Cano-Berlanga
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  2. José-Manuel Giménez-Gómez
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Correspondence to José-Manuel Giménez-Gómez.

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Cano-Berlanga, S., Giménez-Gómez, JM. On Chinese stock markets: How have they evolved over time?. Ann Oper Res 266, 499–510 (2018). https://doi.org/10.1007/s10479-017-2602-4

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